THE QUESTION of what constitutes NET REVENUE remains the definitive battleground for Sabah’s fiscal future. As the court-mandated deadline approaches, the conversation has moved far beyond simple tax and duty collection.
Federal negotiators frequently point to high federal spending on schools, hospitals, and security within the state as justification for withholding the special grant. This defense fundamentally misunderstands the constitutional mathematics of the Malaysia Agreement 1963.
When the Federation collects the entirety of the REVENUE derived from Sabah, the Constitution divides that wealth. Two-fifths of the portion of federal revenue derived from Sabah belongs unconditionally to the state. The remaining three-fifths portion forms the federal share. Any federal expenditure can only draw from that three-fifths portion. National infrastructure and public services remain a universal federal duty owed to every state in the federation, funded by the federal slice of the same divisible revenue pool. The two-fifths special grant is a separate and constitutionally mandated revenue-sharing entitlement unique to Sabah.
Article 112C of the Federal Constitution specifies that Sabah possesses an entitlement to two-fifths of the NET REVENUE derived by the Federation from the state. The term REVENUE must be understood in its absolute sense, extending beyond TAXES and DUTIES to encompass the full spectrum, all fiscal inflows accruing to the federal treasury from any activity within Sabah.
This necessarily includes federal government-linked companies (FGLC) operating within Sabah.
When federal entities extract value from Sabahan land, labor, infrastructure, and markets, they generate corporate earnings within the state’s economic territory.
We see this clearly with Petroliam Nasional Berhad extracting oil and gas resources, SD Guthrie and FGV cultivating plantations on our land, Tenaga Nasional Berhad operating energy assets, and Telekom Malaysia providing telecommunications infrastructure.
These are examples of FGLCs conducting commercial operations within Sabah. When profits generated from operations in Sabah are consolidated and dividends are remitted to the federal treasury, those sums become federal revenue DERIVED from Sabah.
Constitutional substance remains immune to corporate structuring. Revenue retains its geographic character even after passing through a corporate intermediary before reaching the federal treasury.
Justice demands that we examine substance over structure. Every identifiable portion of federal REVENUE derived from Sabah, whether collected directly through taxation or indirectly through federally owned corporations operating within the state, must enter the two-fifths formula.
DIVIDENDS and other federal receipts attributable to economic activity within Sabah remain mandatory constitutional obligations rather than discretionary transfers.
If the federal government insists that FGLC revenue generated within Sabah is impossible to separately account for, then the constitutional implication is that such entities must either adopt accounting mechanisms that allow proper attribution of derived-from-Sabah revenue or reconsider the continuation of operations within the state.
The constitutional entitlement remains absolute despite administrative difficulty.