Per capita Allocation for 2026 Federal Budget
Combine National Development Expenditure (DE) and direct state allocation in comparing the per capita allocation of funds
To compare per capita funding accurately, we must combine Direct State Line-Item Allocations (state-tagged budget items) with Centralized Sectoral Development Expenditure (DE)—the federal ministry spending on healthcare, education, defense, and mega-infrastructure (such as highways, power grids, and submarine cables).
The Federal Development Expenditure (DE) Framework
Out of Malaysia’s total federal budget expenditure (~RM 419.2 billion), Development Expenditure (DE) stands at approximately RM 86.0 billion.
This RM 86.0 billion is deployed through two distinct channels:
- Direct State Allocations & Special Grants: Earmarked directly for specific state governments (e.g., Sabah's RM 6.9B + RM 600M MA63 grant).
- Centralized / Sectoral Ministry DE: Projects executed directly by federal ministries (Ministry of Works, Ministry of Rural & Regional Development, Ministry of Education, Defense, Health, etc.).
Combined Funding Comparison (Federal DE + Direct State Allocations)
By mapping both direct line items and ministry project spending back to their respective geographic regions, the total effective development expenditure breaks down as follows:
TOTAL FEDERAL DE ALLOCATION (~RM 86B)
│
┌─────────────────────────────────┼─────────────────────────────────┐
▼ ▼ ▼
SABAH REGION SARAWAK REGION PENINSULAR MALAYA
~RM 14.5 Billion ~RM 12.5 Billion ~RM 59.0 Billion
(Direct + Sectoral) (Direct + Sectoral) (Direct + Sectoral)
Detailed Regional Breakdown Table
| Expenditure Category | Sabah | Sarawak | Peninsular Malaysia (Malaya) |
|---|---|---|---|
| Direct State Line-Item DE | RM 6.90 B | RM 6.00 B | ~RM 20.00 B (across 11 states + FTs) |
| MA63 Special Grant (Art. 112D) | RM 0.60 B | RM 0.60 B | N/A |
| Sectoral Ministry DE Spent in Region | ~RM 7.00 B (Pan Borneo, Southern Link Grid, SALAM Cable, Water Infra) | ~RM 5.90 B (SSLR Phase 1/2, Red Line Sibu, SALAM Cable) | ~RM 39.00 B (ECRL, MRT3, Federal Hospitals, Defense, Admin CAPEX) |
| Total Combined Federal DE | ~RM 14.50 Billion | ~RM 12.50 Billion | ~RM 59.00 Billion |
| Total Population (DOSM) | 3.76 Million | 2.50 Million | 27.80 Million |
| Malaysian Citizens Only | 2.72 Million | 2.40 Million | 25.00 Million |
Per Capita Calculation
Using the per capita formula:
\text{Per Capita Allocation} = \frac{\text{Total Combined Federal DE (Direct + Sectoral)}}{\text{Population}}
1. Per Capita Basis (Total Population including Non-Citizens)
- Sabah: \frac{\text{RM 14.50 Billion}}{\text{3.76 Million}} \approx \mathbf{RM\ 3,856\ / \text{person}}
- Sarawak: \frac{\text{RM 12.50 Billion}}{\text{2.50 Million}} \approx \mathbf{RM\ 5,000\ / \text{person}}
- Peninsular Malaysia: \frac{\text{RM 59.00 Billion}}{\text{27.80 Million}} \approx \mathbf{RM\ 2,122\ / \text{person}}
2. Per Capita Basis (Malaysian Citizens Only)
Because non-citizens make up ~27.7% of Sabah’s total population (~1.04 million individuals), calculating funding strictly per citizen changes the output:
- Sabah: \frac{\text{RM 14.50 Billion}}{\text{2.72 Million}} \approx \mathbf{RM\ 5,330\ / \text{citizen}}
- Sarawak: \frac{\text{RM 12.50 Billion}}{\text{2.40 Million}} \approx \mathbf{RM\ 5,208\ / \text{citizen}}
- Peninsular Malaysia: \frac{\text{RM 59.00 Billion}}{\text{25.00 Million}} \approx \mathbf{RM\ 2,360\ / \text{citizen}}
Core Structural Insights
- The Combined Per Capita Premium: When combining direct state allocations and sectoral ministry project funding, Sabah receives roughly 1.8 times more federal DE per resident (and 2.2 times more per citizen) than Peninsular Malaysia on average.
- The Spatial Efficiency Ratio: The per-capita gap is intentional and stems from physical landmass and population density:
\text{Population Density} = \begin{cases} \text{Peninsular Malaysia:} & \sim 210 \text{ people/km}^2 \\ \text{Sabah:} & \sim 51 \text{ people/km}^2 \end{cases}Laying a kilometer of water pipe or power line in Sabah serves far fewer people than the same distance laid along the Klang Valley or West Coast Peninsular corridor. - Execution vs. Allocation Gap: While combined allocations place Sabah ahead on a per-capita basis, state economic reports and legal discussions frequently point out that actual project disbursement rates (spending on the ground) historically lag behind budget allocations due to tender bottlenecks, land acquisition delays, and administrative red tape.
A critical issue in Sabah's public finance is the gap between headline federal development allocations (announced annually in the national budget) and actual on-the-ground project disbursement.
While federal development expenditure (DE) allocated to Sabah reached record highs—rising from RM4.4 billion in 2022 to RM6.9 billion in Budget 2026—the execution rate varies significantly depending on whether projects are managed directly by Sabah State agencies or kept under Federal Ministry control.
Comparative Execution Performance
| Execution Channel | Typical Annual Execution Rate | Performance Profile |
|---|---|---|
| Federal Funds Managed Directly by Sabah State Agencies | 80% – 99.5% | High Efficiency. The Sabah Ministry of Finance reported a 99.52% execution rate for federal allocations delegated to state agencies in 2025, placing Sabah as the 3rd best-performing state in Malaysia for state-managed federal funds. |
| Direct Federal Ministry-Executed Projects | 60% – 67% | Systemic Lag. Historically, projects managed directly by federal ministries in Putrajaya average 60% to 67% utilization by Q4. Approximately 30% to 40% of allocated funds are routinely unspent, resulting in project rollovers or returned funds. |
Primary Causes of Execution Lag in Direct Federal DE
1. Centralized Procurement and Putrajaya Approval Delays
Historically, project approvals, tender evaluations, and variation orders (VOs) required multi-tiered sign-offs from ministry headquarters in Putrajaya. This administrative structure created lead times of several months before contractors could draw down funds.
2. The Pre-Implementation "Bottleneck"
A significant portion of approved DE projects remain stuck in the pre-implementation phase. Out of over 1,180 projects approved for Sabah under the 5-year development plan, over 80% have been held in pre-implementation stages (feasibility studies, land acquisition, site surveys, and tender procurement), where financial disbursement is minimal compared to active physical construction.
3. Land Acquisition & Utility Relocation
Linear infrastructure projects—such as the Pan Borneo Highway Sabah (Phase 1A/1B), rural road connections, and high-voltage transmission lines—frequently face delays due to:
- Lengthy negotiations regarding Native Customary Rights (NCR) land and land title acquisition.
- Slow utility relocation (shifting existing water mains and electricity poles along expanding road alignments).
4. The Consolidated Fund Issue
Direct federal development allocations do not enter the Sabah State Consolidated Fund. Because the funds are retained and disbursed directly by federal ministry accounts in Putrajaya, local state agencies lack direct authority to reallocate underutilized funds toward faster-moving local projects within the same financial year.
Key Policy Interventions & MA63 Reforms
To resolve these execution bottlenecks, recent structural changes have been implemented under the Malaysia Agreement 1963 (MA63) framework:
1. Delegation of Technical Approval Authority (Up to RM50 Million) The Federal Government delegated full technical approval authority for development projects under RM50 million directly to Sabah’s Public Works Department (JKR Sabah) and Department of Irrigation and Drainage (JPS Sabah), bypassing Putrajaya approval queues.
2. Escalation of Special Grants The MA63 Special Grant under Article 112D was doubled to RM600 million, placing liquidity directly into state-administered channels for immediate local deployment.
3. Direct Project Delivery Committees Priority infrastructure—such as the RM1.67 billion Pan Borneo Sabah allocation, RM1.2 billion electricity grid support, and RM1 billion water infrastructure program—are increasingly being managed via joint federal-state technical committees to expedite tender awards and site handovers.
The legal and political status of Sabah's 40% net revenue entitlement claim is defined by a landmark High Court ruling, subsequent appellate appeals, and ongoing negotiations regarding interim funding versus historical arrears.
1. Constitutional & Legal Framework
The 40% net revenue claim is rooted in the constitutional provisions negotiated under the Malaysia Agreement 1963 (MA63):
- Article 112C & Tenth Schedule, Part IV, Section 2(1): Mandates a Special Grant to Sabah equivalent to 40% of the net revenue derived by the Federal Government from the state.
- Article 112D: Mandates periodic 5-year joint reviews of this grant between the Federal Government and the Sabah State Government.
- The "Lost Years" (1974–2021): Following the initial review in 1969, the Federal Government failed to conduct mandatory 5-year reviews for nearly 48 years. Instead, Sabah was paid a frozen, flat-rate annual grant of RM 26.7 million, disregarding the 40% formula.
2. The Landmark High Court Judgment (October 2025)
In a major legal precedent, the Kota Kinabalu High Court ruled in favor of the Sabah Law Society (SLS) in its judicial review action against the Federal Government (SLS v. Government of Malaysia & Anor):
- Unconstitutional Omission: The High Court held that the failure to conduct reviews and calculate the 40% entitlement for the 48 "Lost Years" was unconstitutional, unlawful, and ultra vires Articles 112C and 112D.
- Order of Mandamus: The court issued a mandatory order directing the Federal and Sabah State Governments to conduct an immediate constitutional review under Article 112D to determine and remit the 40% net revenue arrears for 1974–2021.
- Strict Timelines: The High Court ordered negotiations to commence within 90 days and complete within 180 days (setting a deadline of April 15, 2026).
3. Current Appellate Status (2026)
Following the High Court's judgment, legal proceedings moved to the Court of Appeal:
- Federal Attorney General's Appeal: The Federal Government filed an appeal challenging specific aspects of the High Court judgment—including the findings of breach/abuse of power and the imposition of court-mandated strict timelines.
- Stay of Execution (April 2026): The Court of Appeal granted the Federal Government's application for a stay of execution on the High Court’s 180-day deadline, temporarily freezing the mandatory timeline pending the full hearing of the appeal.
- Divergence Between Political Stance and Legal Filings:
- Executive Position: The Prime Minister has repeatedly stated publicly that the Federal Government does not dispute the 40% entitlement principle and is committed to fulfilling MA63 obligations.
- Legal Reality: The Federal AG's appeal and stay application mean that the exact computation method, liability for past arrears, and enforceability of strict judicial timelines remain actively contested in court.
4. Financial & Political Dynamics
SABAH 40% ENTITLEMENT PROFILE ┌──────────────────────────────────────┬──────────────────────────────────────┐ │ INTERIM SPECIAL GRANT │ CONSTITUTIONAL 40% CLAIM │ ├──────────────────────────────────────┼──────────────────────────────────────┤ │ • Increased to RM 600 Million │ • Estimated at Billions annually │ │ • Paid "without prejudice" │ • Includes historical arrears (48 yrs)│ │ • Governed by Article 112D │ • Governed by Art 112C + 10th Sched │ └──────────────────────────────────────┴──────────────────────────────────────┘
- Interim Funding vs. Constitutional Benchmark: Pending a final judicial resolution or bilateral settlement, the Federal Government increased the interim Special Grant to RM 600 million annually for Sabah. However, this is legally designated as an interim payment without prejudice to Sabah's constitutional claim under Article 112C.
- Sabah Political Landscape: The filing of the federal appeal and stay application generated significant public friction in Sabah. Regional political coalitions and civil society groups continue to press for a formal, binding settlement mechanism for the arrears rather than relying on ad-hoc interim grants.
Explain how 'net revenue' is legally defined and calculated under the Tenth Schedule of the Federal Constitution for Sabah's 40% claim.
Under Article 112C and Part IV, Section 2 of the Tenth Schedule of the Federal Constitution of Malaysia, Sabah’s 40% Special Grant is defined through a specific statutory formula.
1. The Core Constitutional Formula
Section 2(1) of Part IV states that the grant payable to Sabah in any financial year is:
\text{Special Grant} = 40\% \times \left( \text{Net Revenue}_{t} - \text{Net Revenue}_{1963} \right)
- \text{Net Revenue}_{t}: The net federal revenue derived from Sabah in the current financial year t.
- \text{Net Revenue}_{1963}: The baseline net federal revenue derived from Sabah in 1963 (calculated under the tax structures in place on Malaysia Day).
2. Statutory Definition of "Net Revenue"
Section 2(1)(b) of Part IV explicitly defines Net Revenue as:
"...the revenue which accrues to the Federation, less the amounts received by the State in respect of assignments of that revenue."
To calculate this value for any given year, two distinct variables must be calculated:
\text{Net Revenue}_{t} = \text{Gross Federal Revenue Derived from Sabah } (R_{\text{Fed}}) - \text{Revenue Assigned to the State } (R_{\text{Assigned}})
A. Gross Federal Revenue Derived from Sabah (R_{\text{Fed}})
This encompasses all revenue collected by, accruing to, or attributable to the Federal Government originating from the territory of Sabah. Under standard accounting and legal practice, this includes:
- Direct Taxes: Personal Income Tax, Corporate Income Tax, Petroleum Income Tax (PITA), Real Property Gains Tax (RPGT), and Stamp Duties collected/derived from Sabah operations.
- Indirect Taxes: Sales and Services Tax (SST), Customs Duties (Import/Export), Excise Duties, and windfall profit levies.
- Non-Tax Revenue & Dividends: Federal share of petroleum royalties, regulatory fees, licenses, and federal statutory body or GLC dividends (such as PETRONAS dividends) directly attributable to resource extraction or economic activity in Sabah.
B. Permissible Deductions (R_{\text{Assigned}})
To prevent double counting, the formula deducts revenue that the Federal Government has already assigned directly to the State Consolidated Fund under Part V of the Tenth Schedule. These assignments include:
- Import and export duties on petroleum products and timber/forest produce.
- State sales taxes.
- Port and harbour fees/dues (other than federal ports).
- Other specific grants charged under Part V.
3. Key Legal & Accounting Controversies in Calculation
Because the Federal Constitution provides the legal principle rather than a step-by-step accounting manual, three primary legal debates surround how the calculation is operationalized:
1. "Derived From" vs. "Collected In"
- The Federal Administrative View: Historically, federal reports primarily tracked taxes physically collected at tax offices located within Sabah.
- The Constitutional/Legal View: Legal scholars and the Sabah Law Society emphasize the word "derived". Revenue derived from Sabah includes taxes paid at headquarters in Kuala Lumpur or Selangor by corporations whose revenue-generating assets, plantations, or oil wells physically operate in Sabah.
2. Petroleum Income & Offshore Territorial Limits
- A major component of the calculation is Petroleum Income Tax (PITA) and PETRONAS dividends. A key legal dispute centers on whether revenue derived from offshore oil and gas fields within Sabah’s continental shelf and Exclusive Economic Zone (EEZ) constitutes revenue "derived from Sabah" under the 1963 baseline boundary definitions.
3. Revenue vs. Net Fiscal Position (The Expenditure Fallacy)
- Politicians sometimes argue that federal operating expenses in Sabah (e.g., funding schools, police, healthcare, federal agency salaries) should be deducted from the revenue total.
- Legal Position: From a strict statutory perspective, Section 2 of Part IV refers exclusively to Revenue, not net expenditure or fiscal deficit. Federal operating and development expenditures are separate constitutional duties governed under the Federal List, not deductible items under the Tenth Schedule calculation.
