STRENGTHENING THE FISCAL POSITION OF THE STATES: A CONSTITUTIONAL PERSPECTIVE

Mohd Helmi Mat Zin; Nazli Ismail Nawang

doi:10.31436/iiumlj.v34i1.1122

Authors

Mohd Helmi Mat Zin Faculty of Law and International Relations, Universiti Sultan Zainal Abidin, Gong Badak Campus, Terengganu, Malaysia
Nazli Ismail Nawang Faculty of Law and International Relations, Universiti Sultan Zainal Abidin, Gong Badak Campus, Terengganu, Malaysia

DOI:

https://doi.org/10.31436/iiumlj.v34i1.1122

Keywords:

Fiscal Federalism, Constitutional Law, Revenue Allocation, Customs Duties, Malaysia

Abstract

This paper examines a key issue in Malaysia’s fiscal federalism: the extent to which federal executive actions undermine state revenue entitlements guaranteed by the Federal Constitution and federal statutes. Although the Constitution provides that states are entitled to revenues from export duties on minerals, analysis of the Customs Act 1967 and the Assignment of Revenue (Export Duty on Iron Ore) Act 1962 shows that ministerial exemptions under subsidiary legislation, particularly the Customs Duties Orders, have, in practice, nullified these rights. Methodologically, the study adopts a mixed-methods approach that combines doctrinal legal analysis with qualitative empirical and comparative methods, supported by evidence from interviews with the Kelantan Customs Department and export records from 2012–2020. The findings reveal that Kelantan exported over 6.2 million metric tonnes of mineral ores valued at RM790.8 million without receiving any state revenue due to federal exemptions. This demonstrates a constitutional conflict: Parliament legislated for state entitlements, yet ministerial discretion has displaced them. The novelty of the study lies in identifying the role of subsidiary legislation as a mechanism that indirectly erodes constitutional guarantees—an aspect largely overlooked in Malaysian federalism scholarship. To address this gap, the paper proposes reforms, including amending the Customs Duties Order 2022 and establishing a federal–state consultative fiscal body to safeguard state rights, ensure compliance with constitutional mandates, and strengthen the financial sustainability of state governments.

Metrics

Metrics Loading ...

References

A Rahman Tang Abdullah, Bilcher Bala, Zainuddin Baco, Mohd Nor Azan Abdullah, and Oummar Nor Aman Othman “Sarawak’s Claim on the State’s Jurisdiction over Oil and Gas on the Continental Shelf: A Legal Historical Perspective.” KnE Social Sciences (2023).

Asia News Network. “Malaysia’s Sabah No Longer Among Top Six States in GDP Contribution, Says Assemblyman.” Accessed August 26, 2025. https://asianews.network/malaysias-sabah-no-longer-among-top-six-states-in-gdp-contribution-says-assemblyman.

Aziz, Shamrahayu A. “Federalism and Constitutional Interpretation in Malaysia.” IIUM Law Journal 19, no. 2 (2011): 121–125.

Aziz, Shamrahayu A. “Federalism and the Distribution of Legislative Powers in Malaysia.” IIUM Law Journal 20, no. 1 (2012): 25–27.

Aziz, Shamrahayu A. “Islamic Criminal Law in the Malaysian Federal Structure: A Constitutional Perspective.” IIUM Law Journal 15, no. 1 (2012): 1–24. https://doi.org/10.31436/iiumlj.v15i1.62.

Bari, Abdul Aziz. Malaysian Constitution: A Critical Introduction. Kuala Lumpur: The Other Press, 2003.

Bari, Abdul Aziz. “The Malaysian Constitution and the Centralisation of Power.” IIUM Law Journal 14, no. 1 (2006): 1–5.

Bird, Richard M., and François Vaillancourt. Fiscal Federalism in Theory and Practice. Montreal: McGill–Queen’s University Press, 1998.

Buteyn, S. D. “The Mineral Industry of Malaysia in 2019.” In Minerals Yearbook 2019, Volume III: Area Reports—International, edited by U.S. Geological Survey. Reston, VA: U.S. Geological Survey, U.S. Department of the Interior, 2021.

Canadian Western Bank v. Alberta. 2007 SCC 22.

Commonwealth Grants Commission Act 1973 (Cth).

“The Edge Malaysia,” “Cover Story 2: A Look at the States’ Fiscal Health.” February 3–9, 2025. https://theedgemalaysia.com/

node/743079.

City Council of Georgetown v The Government of the State of Penang & Anor [1967] 1 MLJ 169.

Federation of Malaya Constitutional Commission. Report of the Federation of Malaya Constitutional Commission, 1956–1957. Kuala Lumpur: Government Printer, 1957.

Finer, S. E. Theory and Practice of Modern Government. London: Methuen, 1949.

Government of the State of Kelantan v The Government of the Federation of Malaya and Tunku Abdul Rahman Putra al-Haj [1963] 1 MLJ 355.

Hamzah, Wan Arfah. “The Dynamics of Federal–State Relations in Malaysia.” IIUM Law Journal 18, no. 2 (2010): 150–155.

Harding, Andrew. The Constitution of Malaysia: A Contextual Analysis. Oxford: Hart Publishing, 2012.

Hussain, S. M. Federalisme di Malaysia. Kuala Lumpur: Dewan Bahasa dan Pustaka, 1988.

Ismail, S. N. A., and A. H. Sofian. “Recent Research in the Malaysian Mining Industry and Its Contribution to Other Sectors: A Systematic

Literature Review Approach.” Research Square (2022). https://doi.org/10.21203/rs.3.rs-1527958/v1.

Kerajaan Malaysia v Tay Chai Huat [2012] 3 MLJ 149.

Livingston, W. S. Federalism and Constitutional Change. Oxford: Clarendon Press, 1974.

Nik Mahmood, Nik Ahmad Kamal. “Federal–State Financial Relations in Malaysia.” IIUM Law Journal 16, no. 2 (2008): 211–214.

Mamat bin Daud v Government of Malaysia [1988] 1 MLJ 119.

Malaysia. Assignment of Export Duties (Mineral Ores) Act 1964.

Oates, Wallace E. “An Essay on Fiscal Federalism.” Journal of Economic Literature 37, no. 3 (1999): 1120–1149.

Penang Institute. A Critical Need for Effective State-Federal Relations in Malaysia. Penang: Penang Institute, 2025.

Phang Chin Hock v Public Prosecutor [1980] 1 MLJ 70.

Public Prosecutor v Wah Ah Jee [1919] AC 458.

Quiggin, John. “Measuring Fiscal Imbalance in Federations.” Australian Economic Review 31, no. 1 (1998): 77–85.

Reference re Securities Act. 2011 SCC 66.

Saunders, Cheryl. The Australian Constitution and Federalism. Melbourne: Melbourne University Press, 1997.

Semenyih Jaya Sdn Bhd v Pentadbir Tanah Daerah Hulu Langat [2017] 3 MLJ 561.

Shuaib, Farid Sufian. “The Constitution and Human Rights: Revisiting the Contribution of Tan Sri Harun M. Hashim.” IIUM Law Journal 31, no. 2 (2023): 48–57.

Siddique, Sharon, and Leo Suryadinata. Malaysia: Federation or Confederation? Singapore: Institute of Southeast Asian Studies, 1982.

Simandjuntak, B. Federalisme dan Demokrasi di Indonesia. Jakarta: Pustaka Sinar Harapan, 1968.

Strong, C. F. Modern Political Constitutions: An Introduction to the Comparative Study of Their History and Existing Form. 2nd ed. London: Sidgwick & Jackson, 1966.

Sulaiman, K. F., I. Satriawan, N. Musa, and M. A. Fathi. “A Comparison of Decentralization Policy in Indonesia and Malaysia.” Petita: Jurnal Kajian Ilmu Hukum dan Syariah 10, no. 1 (2025): 297–321.

Umikalsum. Federalisme dalam Perlembagaan Malaysia. Kuala Lumpur: Dewan Bahasa dan Pustaka, 1991.

United States Constitution, art. 1, sec. 8; art. VI, cl. 2.

United States v Lopez 514 U.S. 549 (1995).

United States v Morrison 529 U.S. 598 (2000).

Wahi, B. Y. “Kewangan.” In Perkembangan Undang-Undang Perlembagaan Persekutuan, edited by A. Ibrahim et al., 278–281. Kuala Lumpur: Dewan Bahasa dan Pustaka, 2003.

Watts, Ronald L. Comparing Federal Systems. Montreal: McGill–Queen’s University Press, 2008.

Watts, Ronald L. New Federations: Experiments in the Commonwealth. Oxford: Clarendon Press, 1966.

Wee, Chong Hui. Regional Disparities and Federalism in Malaysia. Kuala Lumpur: University of Malaya Press, 2023.

Wheare, K. C. Federal Government. New York: Oxford University Press, 1964.

Widiarto, A. E., M. S. Hassan, M. H. M. Rusli, and E. B. Setiawan. “The Authority Relationship of Central and Local Governments in Forming Laws and Regulations: Between Indonesia and Malaysia.” Legality: Jurnal Ilmiah Hukum 33, no. 1 (2025): 148–167.

Zahrin. “Federalisme Fiskal: Peruntukan Kerajaan Persekutuan Kepada Negeri Johor dan Kedah.” Undergraduate Research Paper, University of Malaya, 2004.