FMT looks into what the 40% special grant entails, the significance of the 2026 payout figure, and some of the challenges faced.
Anwar, who is also the finance minister, said Putrajaya and the Sabah government were also working towards a permanent formula for calculating the state’s entitlement to its share of federal revenue, as provided for in the Federal Constitution.
Tabling Budget 2027 in the Dewan Rakyat, the prime minister acknowledged that the special grant payments to Sabah had “for decades” failed to keep pace with the state’s development needs.
“The Madani government has raised it on three occasions,” he said, referring to special grant payments of RM300 million in 2023 and RM600 million in 2025.
“The latest interim rate stands at RM1.5 billion, to be paid in full before the year is out. Negotiations with Sabah and Sarawak continue towards a fair and sustainable annual formula,” the prime minister added.
FMT looks into what the 40% special grant entails, the significance of the latest RM1.5 billion figure, and some of the challenges faced.
What is the 40% special grant?
The Malaysia Agreement 1963 (MA63) is the treaty signed by the governments of the United Kingdom, the Federation of Malaya, North Borneo (now Sabah), Sarawak and Singapore that led to the formation of Malaysia.
It sets out the constitutional, financial and administrative arrangements governing the new federation, including various safeguards for Sabah and Sarawak, which were subsequently incorporated into the constitution.
One of those safeguards was the 40% special grant, enshrined in Section 2(1) of Part IV of the Tenth Schedule to the constitution.
Lawyer Mazlianie Mohd Lan described the grant as “a constitutional entitlement that gives Sabah 40% of the growth in net revenue collected by the federal government from the state”.
‘Lost years’
Under Article 112D of the Federal Constitution, the special grant was subject to a five-yearly review by the federal and state governments. However, no review took place between 1974 and 2021, dubbed the “lost years”. Instead, a fixed sum of RM26.7 million was paid annually.
On Oct 17 last year, the Kota Kinabalu High Court ruled, in judicial review proceedings brought by the Sabah Law Society, that the federal government had breached its constitutional duties to Sabah by failing to conduct periodic reviews over the lost years.
Justice Celestina Stuel Galid ordered the two governments to enter into direct negotiations to finalise the quantum due to Sabah over the lost years, and for payment to be made within 180 days of the judgment.
The order has been stayed by the Court of Appeal pending disposal of Putrajaya’s appeal, which was heard on Oct 29 and is awaiting a decision.
Meanwhile, in 2020, Sabah received RM53.4 million, although the sum reverted to RM26.7 million the following year.
In 2022, a review order introduced escalating payments starting at RM125.6 million. The following year, the interim grant was revised to RM300 million, before the federal government raised it to RM600 million in 2025, and RM1.5 billion this year.
Why the RM1.5 billion allocation matters
Both Anwar and Sabah chief minister Hajiji Noor have hailed this year’s allocation, by far the highest financial quantum ever delivered, as a demonstration of genuine commitment towards finalising the mechanism for computation of the special grant.
According to Mazlianie, the general view of the public has been mixed, with some calling it “insufficient” and “only a temporary fix”, while others have welcomed it as a display of a desire to fulfil the constitutional rights of Sabahans.
“The RM1.5 billion interim payment should be viewed positively,” said Mazlianie.
“However, it must not distract from the ultimate objective of determining, without further delay, Sabah’s full 40% special grant entitlement under the Federal Constitution, including for the ‘lost’ and subsequent years.”
What is needed to finalise the formula?
According to Mazlianie, several complex legal, technical and accounting issues must be resolved to arrive at a permanent and workable formula for calculating Sabah’s 40% special grant.
For instance, “net revenue” is defined as revenue that accrues to the federation less statutory assignments received by the state.
Mazlianie said the parties must also determine whether federal earnings in Sabah derived from items under the constitution’s federal list — such as tourism, oil, oilfields, real property gains tax and other taxes — should be included in the calculation, given that such revenue forms part of the Federal Consolidated Fund.
She said another issue that must be resolved is what constitutes a “permissible deduction”.
Likewise, questions arise as to whether revenue derived “from Sabah” covers only the landmass or also extends to its territorial waters, the continental shelf and the exclusive economic zone.
This, she said, underscores the need to establish the parameters of territorial sovereignty.
Another matter that would need to be addressed is the manner in which the financial accounts are kept.
According to Mazlianie, between 1964 and 1972, the finance ministry published federal revenue and expenditure estimates with distinct columns separating revenue from Peninsular Malaysia, Sabah and Sarawak.
However, she said that since 1973, federal accounts have consolidated the numbers into aggregate national sums.
“Publishing transparent, segregated financial reports isolating Sabah’s derived revenue is essential to calculate the 40% formula accurately,” she said.
Is Putrajaya moving in the right direction?
Mazlianie said the federal government appeared to be moving in the right direction, pointing to initiatives such as the MA63 Implementation Action Council, the MA63 dashboard, increased interim payments and continued engagement between Putrajaya and Sabah.
She described the recent developments as a marked improvement from earlier years, when discussions on MA63 issues were far less prominent in public discourse.
However, she stressed that these efforts did not diminish the government’s obligation to fulfil Sabah’s constitutional entitlement to the 40% special grant.
“Time is of the essence. Sabah’s development needs must be addressed urgently and the constitutional right to the annual 40% entitlement must be fulfilled without further delay,” she said.
Mazlianie also called for greater transparency in the MA63 dashboard, saying it should provide more detailed updates on the status of each outstanding issue, allow for meaningful public engagement, and identify the individuals responsible for specific matters to promote accountability and ownership.
Beyond the legal and constitutional aspects, she said Malaysians should view the 40% special grant as an investment in national growth rather than a financial burden.
According to her, consistent payment of the entitlement would help accelerate Sabah’s development, strengthen key sectors such as agriculture, tourism and sustainable resource-based industries, and ultimately contribute to higher national revenue.
“The 40% special grant should not be seen as an expense that depletes the nation’s wealth. A stronger Sabah economy will also strengthen Malaysia’s economy,” she said. - FMT
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.