Sabah revenue appeal focuses on special grant review and years of delay

Traders Union
All News
Regulators
Sabah Revenue Appeal & Grant

Highlights

The Federal Government paid Sabah a special grant of RM26.7 million a year from 1974 to 2021, increasing to RM138.1 million in 2025 and an interim RM1.5 billion for 2026.
The Court of Appeal is being asked to decide whether the original 40% formula for Sabah’s 1974–2021 special grant remains in force, with further payments suspended until the appeal is decided.
The Sabah Law Society argued that the failure to conduct reviews and make full payments had harmed Sabah’s development, while the Constitution requires a review every five years.

This article was translated from the original. Read the original version by our correspondent here.

Appeal status and financial implications

According to The Edge Malaysia, the Federal Government argued that special grant payments to Sabah of RM26.7 million a year continued from 1974 to 2021, and that the Sabah Government received those payments throughout that period. Following the 2021 review, larger allocations were made: RM125.6 million for 2022, RM129.7 million for 2023, RM133.8 million for 2024 and RM138.1 million for 2025.

For 2026, Prime Minister Datuk Seri Anwar Ibrahim agreed to an interim special grant of RM1.5 billion. During the recent presentation of the 2027 budget, Anwar, in his capacity as Finance Minister, announced that Sabah would receive RM18.7 billion for 2027.

The Federal Government is now asking the Court of Appeal to set aside the High Court’s decision on Sabah’s entitlement to a 40% special grant for the period from 1974 to 2021, often referred to in Sabah as the "lost years". In April, the Federal Government obtained a stay from the Court of Appeal, halting the calculation of revenue and further payments to Sabah pending the outcome of this appeal.

In October last year, Galid ruled that the Federal Government had breached its constitutional obligations by failing to complete the second review in 1974, and that the original 40% formula remained payable for the period from 1974 to 2021. The judge also ordered a fresh review, payment or constitutional damages, and the submission of a statement of accounts for the amount in question to the Sabah Law Society.

The Sabah Law Society, represented by lawyer David Fung Yin Kee, defended the decision, saying the judicial review was brought in the interests of the people of Sabah, who he said had been affected by the lack of a review and insufficient development funding. He argued that the people of Sabah pay taxes to the Federal Government, but only a small portion is returned to the state, while the reviews required by the Constitution were not carried out.

Sabah Attorney General Datuk Brenndon Keith Soh, who intervened in the judicial review to be heard, said Articles 112(C) and 112(D) of the Constitution should be read harmoniously and that the lower court may have erred in treating the five-year review period as mandatory. He added that an agreement on the second review was only reached in 2021, as announced in a joint statement by then Prime Minister Datuk Seri Ismail Sabri Yaakob and Sabah Chief Minister Datuk Seri Hajiji Noor.

Justice Datuk Azhahari Kamal Ramli said the panel needed time to consider the matter before making a decision, and set 12 Nov for case management.

In our earlier coverage of the Budget 2027, we highlighted the increase in Federal Government spending to RM459.8 billion (+9.7% compared with 2026) and how historical patterns show that allocations typically rise in the run-up to or following an election. The article also explained the factors driving higher allocations for supplies and services, including preparations for GE16, the implementation of a new minimum wage and major programmes such as Visit Malaysia 2026-2027 and the 2027 SEA Games—offering insight into the spending pressures affecting the government’s fiscal headroom.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.