AG fails appeal to quash Sabah revenue challenge

The apex court today dismissed the attorney-general’s (AG) bid to halt Sabah Law Society’s (SLS) challenge over the state’s 40 percent grant revenue.

A three-person Federal Court bench chaired by judge P Nallini today denied leave for the Malaysian government’s top lawyer to commence the appeal.

As a result, the Kota Kinabalu High Court will proceed to hear the merits of the judicial review over the federal government’s alleged failure to return the sum derived from Sabah to the state government.

The civil action is linked to annual revenue during the so-called “lost years” between 1974 and 2022.

Two years ago, SLS filed the judicial review bid to nullify the federal government’s gazette of an RM125.6 million annual grant for Sabah, claiming it violated the state’s revenue rights under the Malaysia Agreement 1963.

The Kota Kinabalu High Court granted SLS leave to proceed with the action, and the Court of Appeal upheld the green light.

Federal govt breached duty

SLS claimed the federal government’s failure to review the payments in 1974 amounts to a breach of its duty under Article 112D of the Federal Constitution.

Article 112D states that the federal government’s annual grant to Sabah is subject to a periodic review.

The provision for the grant is laid out under Article 112C(1)(a), read together with Part IV of the Tenth Schedule of the Constitution.

Among other things, it states the federal government shall provide Sabah with an annual grant equivalent to “two-fifths of the amount by which the net revenue derived by the federation from Sabah exceeds the net revenue which would have been so derived in the year”.

However, per Article 112D, if the federal and state governments agree, they can alter or abolish these grants or create a new one as a substitute for the grant stated in the Constitution.

Article 112D also lays out various factors that should be considered in the review, including the federal government’s financial position, the needs of the state government, and ensuring the latter has enough revenue to meet the cost of its services.

The grant is part of the concessions given to Sabah for joining Malaya and Sarawak to form the Federation of Malaysia in 1963.

According to news reports, following the first review under Article 112D in 1969, the two governments agreed on the following amounts in lieu of the grants for Sabah under Article 112C(1)(a): RM20 million in 1969, RM21.5 million in 1970, RM23.1 million in 1971, RM24.8 million in 1972, and RM26.7 million in 1973.

A second review was supposed to have taken place in 1974 but purportedly did not materialise.

Instead, according to a parliamentary reply on March 6 last year, Sabah was paid RM26.7 million for each subsequent year until a review took place in 2022.

New arrangements

The new arrangement after the 2022 review, according to the Federal Gazette in April 2022 was: RM125.6 million in 2022, RM129.7 million in 2023, RM133.8 million in 2024, RM138.1 million in 2025, and RM142.6 million in 2026.

The total came up to RM669.8 million over five years.

However, Prime Minister and Finance Minister Anwar Ibrahim told Parliament last year in his written reply to Keningau MP Jeffrey Kitingan that there would be negotiations for a new arrangement.

Subsequently, after a review in June last year, the 2022 arrangement was scrapped in favour of a new deal gazetted on Nov 22, 2023.

The federal government would pay Sabah RM125.6 million in 2022, RM300 million in 2023, RM306 million in 2024, RM312 million in 2025, RM318 million in 2026, and RM325 million in 2027.

That is RM1.687 billion over six years.

The payments are being made as substitutes to grants stipulated under Article 112C(1)(a), but Pakatan Harapan promised in its 2022 election manifesto to restore it to its “original formula”.

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