There has been much debate recently about the lack of funds to pay for the rebuilding of bridges and roads destroyed by floods in Sabah and the clamour for more such funds from Putrajaya.
This is surprising and a far cry from the colonial days where the colony of North Borneo experienced annual budget surplus even after paying for the colony’s own Police force, education, health and other colonial government services.
This annual budget surplus can be seen from the Colony of North Borneo Report for 1960, 1961 & 1962 (before forming Malaysia in 1963) which shows surplus of income over expenditure. How was this colonial surplus of revenue negotiated for Sabah in the formation of Malaysia?
The answer is that this colonial budget surplus was the bargaining chip for the 40pc excess revenue to be paid as grants by the Federal Government to Sabah under Tenth Schedule Part IV (2)(1) and Article 112C (1) (b) Federal Constitution (“FC”) for “…all proceeds from the taxes, fees and dues specified in Part V of that Schedule, so far as collected, levied or raised within the State…”. This 40pc grant under article 112C (1)(b) FC is subject to review under article 112D (4) FC.
There were similar provisions for review in respect of revenue collected from Singapore under article 48 (1) (f) FC which had since been abolished after Singapore left in 1965. Where does all this revenue collected from Sabah go to the Federal Government?
The answer is in Article 97(1) FC which states that “…all revenues and monies howsoever raised or received by the Federation shall, subject to the provisions of this Constitution and of Federal law, be paid into and form one fund to be known as the Federal Consolidated Fund…”. There are similar provisions in Article 97(2) FC for the states of Malaysia which reads that “…all revenues and moneys howsoever raised or received by a State shall, subject to Clause (3) be paid into and form one fund to be known as the Consolidated Fund of the State…”. However, what happens to the fines, penalties and forfeitures for offences committed within Sabah under the federal law? Does the money go to the Federal consolidated fund or the State consolidated fund?
The answer depends on what is stated in the various federal laws. In the case of S.92 (2) of the Anti-Money Laundering, Anti-Terrorism Financing And Proceeds Of Unlawful Activities Act 2001(AMLA 2001), it states that any fine for compounded offences shall be “ (2)…paid into and form part of the Federal Consolidated Fund…”. Therefore, any fines for offences within the state of Sabah under AMLA 2001 will go to the Federal consolidated fund. Do such monies form part of the 40pc revenue under Article 112C (1) (b) FC?
The answer appears to be negative because Article 97 (1) FC defines federal revenue as “…all revenues and monies howsoever raised…” and so shall include both tax and non tax revenue. In this case, non tax revenue includes fines, penalties and forfeitures.
However, the 40pc revenue for Sabah is limited to “…taxes, fees and dues…” and does not include “fines, penalties and forfeitures…” collected within the state. Therefore, unless there are any future FC amendments, any such penalties under federal law will not benefit the State consolidated fund.
Accordingly, there is reason for the state of Sabah to be alert for any new federal law or any extension of federal law to Sabah as regards whether non tax revenue such as fines, penalties and forfeitures for federal offences within the state will go to the State consolidated fund.
There are several federal laws operating in Sabah such as the Income Tax Act 1967, Customs And Excise Act 1976, Companies Act 2016, Real Property Gains Act 1976Fisheries Act 1985, Police Act 1967, Road Traffic Offences Act 1987 to name a few.
There is no doubt that the gross fines, penalties and forfeitures collected every year for various federal offences will amount to a considerable sum.
Unfortunately, there is no separate data available on this form of non tax revenue. Should such monies be included as part of the 40pc excess revenue under Article 112 (C)(1)(b) FC or should it be separately considered?
This is a question that needs to be carefully considered by all Sabahans because the answer will have a major impact on the State consolidated fund. Therefore, the existing federal laws affecting Sabah and the FC have to be carefully read for their full and complete effect.
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