Options on honouring 40pc entitlement
Published on: Sun, Jun 22, 2025
By: Datuk Roger Chin Text Size: SABAH's 40% entitlement under the Malaysia Agreement 1963 (MA63) has long been a point of contention, with the Federal Government often citing financial constraints as the reason for not fulfilling this obligation. However, the argument of 'inability to pay' is not an absolute financial limitation but rather a matter of budgetary prioritisation. The Federal Government has consistently funded large-scale infrastructure projects in Peninsular Malaysia—such as public transportation systems, skyscrapers, and highways—while similar investments in Sabah have been minimal. This demonstrates that fulfilling Sabah's 40% entitlement is more about political will and resource allocation than an actual lack of financial capacity. It is essential to emphasise that the 40% entitlement is distinct from the Federal Government's other obligations to Sabah under the Federal Constitution, such as development funds. These are separate commitments, and the entitlement under MA63 should not be mixed with broader Federal allocations. A range of innovative mechanisms can be employed to fulfil this legal obligation while ensuring equitable development across Malaysia.
Advertisement 1. Phased Instalment Payments A structured instalment plan would allow the Federal Government to meet its obligation to Sabah while mitigating any immediate financial burden. This approach could mirror how large-scale infrastructure projects in Peninsular Malaysia are prioritised. Key features: Gradual Payment Structure - Payments could be spread over 10 to 20 years, starting with smaller instalments and gradually increasing over time, allowing the Federal Government to manage its fiscal obligations more effectively. Interest on Delays - Should payments be delayed, interest could accrue, ensuring Sabah is not unfairly penalised by any Federal fiscal management issues. 2. Interest-Free Development Loans or Grants In lieu of direct payments, the Federal Government could offer Sabah interest-free loans or grants earmarked for critical development projects, such as infrastructure, healthcare, and education. Considerations: Targeted Development Funding - These funds could be directed towards sectors where Sabah is underdeveloped, providing an immediate boost to the state's growth. Offset Against Entitlement - The value of these loans or grants could be deducted from the total entitlement, allowing for progress towards fulfilling the obligation while directly benefiting Sabah's development. 3. Transfer of Oil and Gas Fields Transferring ownership and control of oil and gas fields within Sabah's territorial waters would provide the state with a direct revenue stream from its natural resources, fostering long-term economic autonomy. Key aspects: Full Ownership - By gaining full control of its oil and gas fields, Sabah could generate significant revenue from resource extraction, with the profits offsetting the Federal Government's 40% obligation. New Resource Exploration - The right to explore and develop new fields could ensure sustainable future revenue for the state, reducing dependence on Federal transfers. 4. Transfer of Federal-Owned Land A feasible option to reduce the Federal Government's financial burden would be the transfer of Federal-owned land in Sabah, particularly those with high economic potential, to the state government. Advantages: Strategic Land Transfers - Economically valuable land could be surrendered to Sabah, enabling the state to generate revenue through development or other uses. Offsetting the Amount Owed - The value of the transferred land would be credited against the 40% entitlement, providing an immediate means of fulfilling part of the obligation without direct cash payments. 5. Revenue-Sharing from Federal Investments Revenue-sharing arrangements for Federal projects in Sabah would ensure that the state benefits from economic activities generated within its borders, particularly in key sectors such as tourism and agriculture. Key considerations: Profit-Sharing Models - Federal enterprises operating in Sabah, such as airports, and tourism developments, could share a portion of their profits with the state. Sector-Specific Revenue - Industries crucial to Sabah's economy could be prioritised for revenue-sharing, ensuring that local resources and projects directly benefit the state. 6. Enhanced Tax Autonomy Granting Sabah greater autonomy in tax collection, particularly in sectors such as tourism and natural resources, would reduce its dependence on Federal transfers and ensure that the state benefits more directly from its own economic activities. Considerations: Exclusive Taxing Authority - Sabah could be given exclusive rights to tax specific industries, ensuring that revenue generated within the state remains in the state. Increased Royalties - The Federal Government could increase Sabah's share of oil and gas royalties from the current 5% to a more equitable level, providing an additional revenue stream. 7. Issuance of Federal Bonds or Sukuk The Federal Government could issue bonds or sukuk (Islamic bonds) specifically designed to fulfil Sabah's entitlement. This would provide immediate funds for development while allowing the Federal Government to spread the repayment over time. Mechanics: Entitlement-Backed Bonds - Bonds linked to Sabah's 40% entitlement would provide upfront financing, allowing for immediate development projects, while the Federal Government repays bondholders over a set period. Sukuk Option - Bonds backed by Federal assets in Sabah could comply with Islamic finance principles, offering an ethical and sustainable method of financing the entitlement. 8. Equity Participation in Government-Linked Companies Sabah could be granted equity stakes in Federal Government-linked companies (GLCs) such as Petronas or Tenaga Nasional Berhad (TNB). These stakes would provide the state with a recurring revenue stream through dividends. Key features: Equity Stakes - Shares in key GLCs would enable Sabah to receive regular dividend payments, which could then be deducted from the overall entitlement. Dividend-Based Fulfilment - Regular dividend payments would serve as an alternative to direct cash transfers, offering a sustainable source of income. 9. Performance-Based Entitlement Adjustments A portion of the entitlement could be linked to Sabah's economic performance, incentivising both the Federal and Sabah state governments to focus on growth-oriented policies. Benefits: Development Incentives - Tying part of the entitlement to key performance indicators, such as GDP growth or infrastructure improvements, would promote long-term development in Sabah. Joint Investment Projects - Federal and State Governments could collaborate on large-scale projects, with profits reinvested into fulfilling Sabah's entitlement. 10. Dedicated Federal Development Funds A one-off, dedicated allocation of Federal development funds to Sabah would provide long-term stability for critical infrastructure projects, separate from the annual budget allocations, and ensure continuity in development initiatives. Key elements: Fully Allocated Funds - Unlike regular budgetary allocations, these development funds would be transferred entirely to Sabah, providing the state with full control over long-term infrastructure projects. Priority Sectors - The funds could be earmarked for essential sectors such as transport, rural electrification, and industrial growth, ensuring that Sabah's development progresses at a comparable rate to Peninsular Malaysia. Concluding Remarks The Federal Government's claim of financial incapacity to meet Sabah's 40% entitlement is more about prioritisation than genuine fiscal limitations. By adopting innovative mechanisms—such as phased instalments, land transfers, or equity stakes—the Government can fulfil its legal obligation while simultaneously supporting Sabah's development. Crucially, these solutions must remain distinct from the Federal Government's other obligations, ensuring that Sabah receives both its rightful entitlement under MA63 and its fair share of Federal development resources. This balanced approach would foster not only fairness for Sabah but also sustainable growth for Malaysia as a whole. The views expressed here are the views of the writer and do not necessarily reflect those of the Daily Express. If you have something to share, write to us at: [email protected]
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