Jeffrey: Sabah’s 40% Includes All Revenues

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KOTA KINABALU: Sabah’s rightful entitlement to 40% of all revenue sources took the spotlight in a dialogue focusing on diversifying the state’s revenue streams yesterday.

Deputy Chief Minister Datuk Seri Panglima Dr Jeffrey Kitingan asserted that the federal government’s revenue collection, from which Sabah is constitutionally entitled to receive 40% of the net collection, should encompass more than just taxes.

Jeffrey argued that revenue from companies based outside of Sabah and income from fees and levies set by government bodies, including the Royal Customs Department, Immigration Department, among others, should be factored into the calculation.

“The 40% revenue entitlement under Article 112C of the federal constitution is not exclusively tax-based. It should cover all revenues originating from Sabah. This is a substantial amount. Yet, we receive just a fraction of it at present.

“Putrajaya contends that the federal government will go bankrupt if they comply with the 40% constitutional requirement… but I disagree. It is Sabah’s money that was collected.

“Putrajaya is not solely reliant on Sabah for revenue. There are other states from which it collects revenue,” he said during his keynote speech at the panel discussion on Sabah’s new revenue sources, held at the Institute for Development Studies yesterday.

Emphasising the all-inclusive nature of the 40% entitlement as specified in Article 112C of the federal constitution, Jeffrey pointed out that Sabah’s share should include dividends that the national oil company, Petronas, pays to Putrajaya.

Jeffrey maintained that Sabah is the rightful owner of natural resources, including those on land and in the subsoil, as it borders the continental shelf, a region with numerous oil and gas platforms.

As per Article 112C of the federal constitution and Part IV of the Tenth Schedule, Sabah is entitled to 40% of the federal government’s revenue collected from the state.

Furthermore, a review as outlined in Article 112D must also be implemented.

Parts III and V of the Tenth Schedule stipulate revenue sources for the states, with Part V detailing additional sources for Sabah and Sarawak.

Part III encompasses, among other sources, revenue from land, mines, forests, service and supply licensing, entertainment duties, court fees, and income from various local boards and councils.

Part V includes duties and fees on petroleum, forest products, motor vehicles, state sales tax, port charges, water rates, and other levies.

The federal government has yet to fulfill its constitutional obligation of a 40% share, a topic that was also discussed at the dialogue.

It was further highlighted that the annual development budget that Putrajaya allocates to Sabah should not be considered as part of the special grant.

From 1963 to 1968, no amount was defined to constitute Sabah’s 40% special grant payments.

In the first review, an agreement resulted in Sabah receiving sums ranging from RM20 million to RM26.7 million between 1969 and 1973 from the federal government.

No review took place from 1974 to 2019, with no explanations given for its absence.

Sabah was allocated a fixed amount of RM26.7 million during this period, neither of these reflecting the 40% entitlement.

Sabah’s special grant increased to RM53.4 million in 2020, and subsequently to RM125.6 million in 2022, following entitlement reviews.

Simultaneously, the Sabah government insisted that both increases were an interim special grant as a substitute for the 40% entitlement.

Sabah Law Society president Roger Chin expressed apprehension over the 2022 review, stating that the fixed payments Sabah received from 1974 to 2021 were omitted, which could become problematic if left unaddressed.

Chin dubbed this period as “Sabah’s lost years”, accusing Putrajaya of violating its constitutional obligation to meet the 40% entitlement.

It has been suggested that Putrajaya’s failure to honor the special grant requirements since 1974 could result in a debt owed to Sabah running into billions of ringgit.

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