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Several Malaysian states are increasingly vocal about their desire for a larger portion of the federal tax revenue collected within their borders. This push for fiscal decentralization stems from a constitutional framework that centralizes revenue collection at the federal level, with states receiving a percentage based on population.
Data from December 2023 highlights a significant disparity, with state governments receiving approximately RM926 per capita in revenue, a fraction of the federal government’s RM8,969 per capita tax collection in 2022. This imbalance has fueled calls for reform.
Johor‘s Crown Prince, Tunku Ismail, has been a prominent advocate for change. In June of the previous year, he expressed frustration with the federal government’s approach, likening Johor’s situation to that of a beggar. He proposed that Johor be allowed to retain between 20% and 30% of its tax revenue. Tunku Ismail, who was appointed Johor regent in late January 2024, emphasized that states should be treated as partners, not subordinates, within Malaysia.
Penang‘s chief Minister, Chow Kon yeow, has also renewed calls for the federal government to consider returning 20% of tax revenue to the state for development purposes. He stated that Penang, a significant contributor to the national coffers, feels “shortchanged” by federal allocations and urged serious consideration of this matter.
Sabah has for years been negotiating for the return of its constitutional entitlement of 40% of its revenue, which it deems crucial for economic development. The Sabah Law Society has initiated a judicial review in the High Court concerning this issue.
Evergreen Insights
Malaysia’s federal system, established by its constitution, centralizes revenue collection to ensure national economic stability and equitable distribution. However, the allocation formula has been a recurring point of contention, with resource-rich states often advocating for greater autonomy and a larger share of the revenue they generate. Historical trends show a continuous dialogue between federal and state governments regarding fiscal powers and revenue sharing, influenced by economic performance, political dynamics, and the specific needs of each state.
Frequently asked Questions
- What is the primary reason Malaysian states are seeking more federal tax revenue?
- States are seeking more federal tax revenue due to the significant disparity between the revenue they generate and the allocations they receive from the federal government.
- How is revenue collection structured in Malaysia?
- Malaysia’s constitution centralizes revenue collection, including all forms of taxes, at the federal level, which then distributes a percentage to the states.
- What percentage of tax revenue has Johor proposed to retain?
- Johor has proposed retaining between 20% and 30% of its tax revenue.
- What is penang’s request regarding federal tax revenue?
- penang’s Chief Minister has called for the federal government to consider returning 20% of tax revenue to the state for its development.
- What is Sabah’s long-standing negotiation regarding its revenue?
- Sabah has been negotiating for the return of its constitutional entitlement of 40% of its revenue, which it considers vital for economic development.
- What action has the Sabah Law Society taken regarding revenue entitlement?
- The Sabah Law Society has filed a judicial review in the High Court concerning the state’s revenue entitlement.
Disclaimer: This article provides facts on government revenue and state fiscal matters. It does not constitute financial or legal advice.
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