Sabah’s 40% entitlement: Why Putrajaya’s delay tactics won’t work

Kua Kia Soong

The Kota Kinabalu High Court’s 17 October written judgment was blunt: the Federal Constitution – read against the Malaysia Agreement (MA63) – gives Sabah a special grant equal to two-fifths (40%) of the excess revenue the federation derives from Sabah over the 1963 baseline; and the period 1974–2021 (the court’s “Lost Years”) saw no proper review, so the statutory duty to make annual 40% grants went unfulfilled.

The judgment ordered a review and remedial steps for those 48 years. 

Within days the Attorney General’s Chambers and cabinet responded not by embracing the clear constitutional pathway the court described, but by launching a narrow, tactical legal challenge – “we accept the 40% entitlement but there are defects in the judgment” – while signalling they will challenge parts of the written reasons. 

That response is classic ‘chop logic’: a mix of procedural hair-splitting, selective history and alternative accounting designed to delay, blunt and reframe an obligation that the court found plain and long-ignored. 

Constitutional text and MA63 clearly specify a 40% special grant: Article 112C of the Federal Constitution (and Section 2(1), Part IV of the Tenth Schedule) requires a special grant to Sabah equal to two-fifths of the increase in net federal revenue derived from Sabah over the 1963 baseline.

The MA63 and the intergovernmental committee or Cobbold reports – documents the High Court relied upon – expressly link the special grant figure and the need for periodic review under Article 112D. This is a historical fact. 

The court found that the federal government had conducted a review for 1969–73 but failed to perform the mandatory review in 1974, and thereafter the single 1973 figure (RM26.7m) was simply rolled forward unchanged from 1974 to 2021. Those are the “Lost Years” the court described. 

Federal government’s delay tactic is not a remedy: Official statements from Putrajaya accept the existence of the 40% entitlement but said certain passages of the 109-page judgment “went beyond the court’s scope” and would be the subject of a limited legal challenge – while the government promised negotiations and larger development allocations to Sabah.

This merely buys time for the federal government, allowing the government to score political points (increased allocations, grand projects) while contesting the very remedial mechanism the court ordered.

The net effect: the obligation remains unresolved on the ground. 

Put bluntly, offering bigger development budgets is not the same as paying a constitutional special grant into Sabah’s consolidated fund as mandated.

The distinction matters legally and financially. The High Court insisted on a statutory process, not political shows. 

Historical and fiscal facts show that Sabah has not been well-funded: For all Putrajaya’s claims of billions in recent federal spending for Sabah (Budget 2025–26 allocations, major projects, direct transfers), they do not negate the court’s finding that the constitutional 40% special grant was not reviewed or calculated from 1974 to 2021.

The special grant mechanism requires periodic reviews under Article 112D. The reviews covering 1974–2021 did not occur; instead, one 1973 figure was rolled forward. The High Court characterised those 48 years as the “Lost Years.” 

Furthermore, oil and gas revenue flows have long been substantially captured at the federal level under the Petroleum Development Act 1974 and production-sharing arrangements.

Producing states in East Malaysia receive a relatively small, fixed share (the well-documented 5% cash payment to producing states) while the lion’s share of petroleum profit and petroleum income tax goes to the federation. 

This structural design explains why Sabah’s case for a 40% constitutional special grant is central: without it, the producing state’s fiscal claim is structurally impaired. 

Recent federal spending to Sabah (eg RM13–17bn annual figures cited by the prime minister for recent years and a RM7bn development allocation in Budget 2026) is public money expended by federal agencies.

Civil society and Sabah watchdogs emphasise that such development allocations are not substitutes for a constitutional special grant paid into Sabah’s consolidated fund.

The court’s remedy is about legal entitlement and accounting for the state, not political project-making by the ruling coalition. 

This injustice to Sabah’s entitlement over decades is quantifiable: The High Court relied on a simple formula (two-fifths of the excess over the 1963 baseline) and on historical federal accountings to show that Sabah was deprived of its due for decades.

The government’s response has focused on semantics of what counts as federal revenue and which items to include or exclude – another example of chop logic.

But that is precisely the accounting the Constitution contemplates: identify net federal revenue from Sabah, compare it to the 1963 baseline, then apply two-fifths.

The federal resistance to a transparent, year-by-year recalculation is therefore revealing: if there was nothing to hide, there would be no need to litigate over the court’s method. 

Independent and official estimates used in public debate point to a wide gulf between what Sabah derived into its own coffers and what the federation collected from Sabah-originating revenue streams (oil, gas, taxes and resource rents).

Official commentary notes Sabah is responsible for a substantial slice of national oil production. Recent reports place Sabah’s share of oil and condensates at near 40% of Malaysia’s production. This strengthens the fairness argument the High Court accepted. 

Law, precedent and international treaty obligations are paramount: The Malaysia Agreement 1963 (MA63) is more than historical background: parts are treaty-level commitments registered at the UN.

The court reasonably relied on MA63 and the intergovernmental committee or Cobbold reports to inform constitutional interpretation.

The Attorney General’s Chambers’ posture – accept the principle but attack the reasons – attempts to separate rights from remedies.

That separation is legally hollow: constitutional rights without a credible remedial accounting process are rights in name only. 

The federal government’s attempt at negotiation cannot be a cover for failure to honour express constitutional review mechanisms.

If the federal government can simply re-label or offset constitutional entitlements with discretionary project allocations, MA63 and the Constitution are hollowed out.

In practical terms, this would set a precedent that the centre may choose when to implement treaty-embedded constitutional guarantees – an outcome the judiciary properly resisted. 

What we the people expect:

• Ensure full transparency: Publish the detailed year-by-year federal revenue derived from Sabah (1963–present) and submit this to the statutorily required review process. The Tenth Schedule contemplates just such an accounting.
• Implement the court-ordered review and remedial timetable instead of litigating over its wording. If the Attorney General’s Chambers believes there are legal infirmities in particular paragraphs, that can be argued, but not as a pretext to avoid the review and the accounting the Constitution requires. D
• Deposit constitutionally mandated sums into Sabah’s consolidated fund (not into project-specific accounts) so the money can be used for Sabah’s own priorities and subject to state legislative oversight – exactly as MA63 contemplated. 
• Agree on a modern, transparent mechanism for what counts as ‘federal revenue’ for the 40% calculation (taxes, petroleum income tax, royalties, charges) and publish it with third-party audit rights. This prevents future ‘lost years’. 

If Putrajaya truly respects the rule of law and the spirit of MA63, it will stop litigating over paragraphs and start delivering on the substance: full accounting, fair arithmetic and restitution where the law requires it.

The people of Sabah deserve nothing less than clarity and the fulfilment of a constitutional promise that has been postponed for half a century.

Dr Kua Kia Soong, a former MP, is the director of human rights group Suaram.

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