A SENIOR Sabah lawyer has suggested that the state government collect all federal taxes in the state and then give Putrajaya its 60% share to resolve the dispute over the state’s demand for 40% of federal taxes collected – a revenue right as stipulated in the Malaysia Agreement 1963 (MA63).

Roger Chin, the immediate past president of the Sabah Law Society (SLS), in his presentation at the Borneo States Symposium in Kuching, said that the Federal Constitution and other relevant federal and state laws might need to be amended to give the state the authority to collect the taxes and determine how the monies are received and which fund they are deposited into.

Chin later told The Malaysian Insight that the sections of the constitution that might need amending are Article 97 (1) and (2).

“I would look at articles that deal with the consolidated fund, for example, Article 97(2).”

He pointed out that currently, all money received by the federal government is deposited into the Federal Consolidated Fund by Clause (1) of Article 97 of the Federal Constitution and accounted for in the Consolidated Revenue Account under paragraph 7(a) of the Financial Procedure Act 1957.

Chin said relevant Sabah laws would also have to be amended to put in place the proposed collection mechanism.

“I believe that could be easily done. There will be several laws that need to be amended.”

Sabah’s demand for Putrajaya to pay 40% of federal taxes collected in the state stretches back to 1963. According to Articles 112C and 112D of the Federal Constitution, Sabah claims it is entitled to receive 40% of the revenue collected by the federal government from the state. This claim includes various taxes and other sources of revenue for the federal government.

However, the federal government has not acknowledged this entitlement as a mandatory or absolute right, considering it more of an aspirational target rather than a legal obligation – an argument disputed by the Sabah government. Putrajaya has also delayed providing Sabah with data regarding the annual revenues collected from Sabah since 1974, making it difficult to calculate the exact amount owed.

Recently, the SLS has been granted the right to pursue judicial review to compel the federal government to fulfil this 40% entitlement. The courts are involved in interpreting the constitutional provisions and deciding on the legality and enforceability of Sabah’s claims. The state government is preparing its calculations and may appoint an independent assessor to determine the exact entitlement.

Putrajaya has been accused of stalling on the issue by questioning the Sabah Law Society’s (SLS) locus standi to pursue a judicial review of the matter. Locus standi refers to the right or capacity to bring an action or to appear in court. The High Court recognised SLS’s application as public interest litigation – litigation that allows organisations or individuals to bring forward cases that address significant public concerns, even if they are not directly affected by the issue. The court deemed the matter as one of considerable public interest due to its implications for Sabah’s constitutional rights and financial entitlements.

The High Court found that the SLS’s case concerns a breach of constitutional duty. Articles 112C and 112D of the Federal Constitution, which provide for Sabah’s 40% entitlement, were central to this determination. The court acknowledged that there was a constitutional duty to pay this entitlement and that a judicial review was appropriate to address any breach of this duty.

The Attorney-General (AG) appealed, but the Court of Appeal upheld the High Court’s decision to grant SLS locus standi, allowing the judicial review to proceed. The AG appealed again, and the case is now before the Federal Court.

The judicial review initiated by SLS aims to compel the federal government to adhere to the constitutional provisions and rectify the historical non-payment of the 40% entitlement to Sabah. This case is emblematic of the broader issues of federal-state financial relations and the enforcement of constitutional rights in Malaysia. – 27 July 2024.