By Datuk Frankie Poon Ming Fung
SANDAKAN: Sabah’s Development Requires Sustainable Income — The Constitutional Obligation to Implement the 40% Net Revenue Entitlement
A state cannot be developed sustainably without adequate and predictable sources of income. This reality is particularly evident in the case of Sabah.
Sabah’s slower pace of development has not been caused by a lack of natural resources, economic potential, or effort. Rather, it stems from insufficient revenue available to the State Government.
While significant economic activities and investments take place in Sabah, their impact on the State’s fiscal capacity remains limited because revenues generated from Sabah are not returned in a fair and meaningful manner.
Even if Sabah were to successfully attract RM100 billion in investments, a fundamental question remains:
How much of that investment actually translates into revenue for the Sabah State Government to build and maintain infrastructure?
Investment value alone does not automatically increase state revenue. Large-scale investments primarily benefit private entities and, in many instances, generate revenues that accrue to federal-level institutions.
Without a guaranteed and fair fiscal return to the State, such investments do not materially enhance Sabah’s ability to finance essential infrastructure such as roads, water supply systems, flood mitigation works, schools, hospitals, and rural development.
In short, investment headlines do not build states — income does.
This is why the central issue is state income, not merely the volume of investments.
Under Articles 112C and 112D of the Federal Constitution, Sabah is entitled to receive a special grant equivalent to 40% of the net revenue of the Federation derived from Sabah.
These provisions form part of the constitutional framework arising from the Malaysia Agreement 1963 (MA63) and remain in force today.
The High Court in Sabah has affirmed that Articles 112C and 112D impose a constitutional obligation on the Federal Government, and that such obligation is not extinguished by non-implementation, administrative delay, or the absence of a payment mechanism. Sabah’s entitlement under these provisions is therefore a legally valid constitutional right, not a matter of executive discretion or political goodwill.
Accordingly, the implementation of the 40% net revenue entitlement is not a political bargaining issue, but one of constitutional compliance and adherence to the rule of law.
Importantly, the implementation of Sabah’s constitutional rights will not weaken Malaysia — it will strengthen the Federation.
First, a financially empowered Sabah will be better able to fund its own infrastructure and public services, thereby reducing long-term fiscal dependence on federal allocations.
This allows the Federal Government to focus resources on national priorities while enabling more balanced regional development.
Second, meaningful implementation of MA63 will restore confidence in the Federal Constitution and the rule of law, reinforcing Malaysia’s credibility as a nation that honours its founding agreements and judicial decisions.
This institutional certainty is essential for long-term political stability and investor confidence.
Third, empowering Sabah economically will unlock its full growth potential, contributing more effectively to national GDP, employment, trade, and regional security, particularly in East Malaysia. A stronger Sabah ultimately translates into a stronger Malaysia.
Finally, honouring Sabah’s constitutional position as one of the founding partners of Malaysia reinforces the spirit of genuine federalism, national unity, and mutual respect upon which Malaysia was formed.
MA63 recognises Sabah as a partner in the Federation, not merely a recipient of development assistance. That partnership must be reflected not only in words, but in actual fiscal and constitutional practice.
In this regard, the Federal Government should:
1. Discharge its constitutional obligation under Articles 112C and 112D by commencing the payment of the 40% net revenue entitlement to Sabah, based on a reasonable, transparent, and lawful assessment; and
2. Enact or amend relevant laws and fiscal mechanisms to enable Sabah to collect all revenues derived from Sabah, retain the 40% portion guaranteed by the Constitution, and thereafter remit the remaining 60% to the Federal Government.
This proposal does not contravene the Federal Constitution. On the contrary, it represents an administrative and legislative measure to give real effect to existing constitutional provisions, consistent with the principles articulated by the High Court.
Sabah is not seeking preferential treatment.
Sabah is seeking the implementation of constitutional rights that have long existed.
Honouring MA63 and Articles 112C–112D is not an act of generosity or political compromise — it is a matter of constitutional duty, national integrity, and the long-term strength of the Federation of Malaysia.
