Sabah petitions federal government for transparent revenue declaration to secure 40pc entitlement

KOTA KINABALU, July 24 — Sabah has petitioned the federal government to require all companies operating within the state to separately declare revenue earned in Sabah, a move aimed at bolstering transparency in the negotiations over its constitutional 40 per cent revenue entitlement.

Sabah Finance Minister Datuk Seri Masidi Manjun said yesterday that the state government wrote to the Ministry of Finance in February and March this year.

“In those letters, among other things, we stressed the need for an official ruling to determine the method for declaring revenue and taxes by Sabah companies, as well as non-Sabah companies with operations in Sabah whose revenue is declared outside Sabah,” Masidi said.

Masidi explained that such a ruling is necessary to ensure consistent compliance and enable the tracking and verification of revenue in a transparent and auditable manner, thereby avoiding future disputes or differences in interpretation.

The issue was highlighted during a state assembly sitting yesterday in response to an adjournment motion by nominated assemblyman Datuk Roger Chin Ken Fong. Chin proposed that Sabah implement a “collection at source” mechanism for revenue generated in the state.

Chin argued that the proposal is not an attempt to change who is entitled to tax revenue under the Federal Constitution, but rather a way to ensure Sabah has independently verifiable information on its internal revenue before its constitutional share is calculated.

He noted that Sabah currently lacks an independent means of confirming the figures used to determine the Special Grant under Article 112C of the Federal Constitution.

“One of the primary difficulties in reaching an agreement on the quantum of the Special Grant may lie in this absence of verified, source-level information,” Chin said.

He suggested that a collection-at-source framework would provide both the state and federal governments with a common, verified data set, making an agreement on the Special Grant more attainable.

While Masidi stated that the government is open to studying the proposal in line with evolving standards of governance, he cautioned that any change to federal tax collection must comply with the Federal Constitution.

Since taxes are currently managed by federal agencies such as the Inland Revenue Board (LHDN) and the Royal Malaysian Customs Department (JKDM), any shift would require a rigorous legal review and federal agreement.

Masidi further said that the study of this new mechanism should be kept separate from the negotiations over Sabah’s constitutional entitlement.

“The Special Grant remains the implementation of Sabah’s financial rights under the Constitution and does not depend on the implementation of any new revenue collection mechanism,” he said.