KUALA LUMPUR – The federal government has expressed its respect for the legal proceedings following the Kota Kinabalu High Court's decision on the review of Sabah's 40% revenue entitlement.
Prime Minister Datuk Seri Anwar Ibrahim assured that the Madani government would thoroughly examine the ruling once the full written judgment is received to ensure the best interests of Sabah and Malaysia are considered.
"The Madani government acknowledges the decision of the Kota Kinabalu High Court on October 17 regarding the review of Sabah's federal special grant," Anwar told Dewan Rakyat.
"We will carefully study the judgment's grounds, which have not yet been provided, before determining the next steps, in consultation with the Attorney-General. This will be done in the best interests of both Sabah and the nation."
On October 17, the High Court ruled that both the federal and Sabah governments must undertake a review under Article 112D of the Federal Constitution regarding the state’s 40 per cent revenue entitlement from the federal government. The Attorney-General’s Chambers will assess the ruling before taking any further action.
During a special briefing, Anwar highlighted that the court's decision could be misinterpreted, suggesting that the federal government only extracts revenue from Sabah without contributing to its development.
"This decision could lead to misleading interpretations, as though the federal government merely takes revenue from Sabah without any regard for the state's development," he explained.
He reaffirmed the federal government’s commitment to fulfilling its constitutional obligations to Sabah and upholding the Malaysia Agreement 1963 (MA63). Anwar also noted that 13 of Sabah's outstanding claims under MA63 have already been addressed. These include transferring regulatory authority over electricity supply to the state, recognising Sabah’s Public Works Department and Water Department, and appointing a permanent representative to the Inland Revenue Board.
Regarding the Federal Special Grant, Anwar pointed out that the allocation for Sabah had significantly increased, from RM26.7 million in 2021 to RM600 million this year, with full payment for 2025 made on September 10.
"The new rate is an interim measure as both governments work on a new formula for future calculations," he added.
Federal spending in Sabah continues to surpass the state’s annual revenue, with allocations rising from RM13 billion in 2022 to RM17 billion for 2025 and 2026.
"Under Budget 2026, Sabah will receive the highest development allocation of any state, amounting to nearly RM7 billion," Anwar said.
He cited major projects, such as the Sabah Heart Centre and the Pan Borneo Highway, as evidence of the government's ongoing support.
Anwar also emphasised the federal government’s backing for Sabah’s involvement in the oil and gas sector. Through the 2021 Commercial Collaboration Agreement, local contractors have secured projects worth RM2 billion, contributing to RM2 billion in petroleum sales tax revenue for the state since 2022.
"The Madani government has consistently worked to resolve all outstanding MA63 claims, increase the Special Grant for Sabah, and raise both management and development allocations for the state," he concluded.
Last Friday, the Kota Kinabalu High Court ruled that the federal government had unlawfully failed to provide Sabah with its constitutional entitlement of 40% of the net federal revenue generated from the state over the past five decades.
The court ordered the federal government to review the revenue-sharing arrangement and reach an agreement on Sabah's 40 per cent entitlement for the years 1974 to 2021 within 180 days. - October 22, 2025
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