Johor’s call to Malaysia govt for ‘equal partner’ status belies economic ambition

KUALA LUMPUR - The recent call by the Johor regent for the southern state to be treated as an equal partner to Malaysia’s federal government belies its ambition to emerge as the most economically-developed region in the country.

Experts said the claim by Tunku Ismail Sultan Ibrahim that Johor does not belong to Malaysia, and for more tax revenue to be returned to the state, has no basis in existing laws. But it signals that Johor aspires to gain greater legislative and financial autonomy to chart its future.

“Johor does not belong to Malaysia. We are partners, so you must start treating us like partners,” Tunku Ismail said in a podcast on June 9.

“Johor provides about RM48 billion (S$13.8 billion) in tax revenue to the federal government, but only receives RM1.4 billion in return through the annual budget. How are we supposed to take care of our people? That’s why we have bad roads and poor education and health facilities,” he said.

Tunku Ismail, who is popularly known by the acronym TMJ or Tunku Mahkota Johor,

is on the throne

while his father Sultan Ibrahim Iskandar acts as the federal monarch until 2029.

Currently, the federal government returns less than 3 per cent of Johor’s tax revenue back to the state through the annual budget. The Johor state government announced on June 11 that it had proposed to the federal government that at least 30 per cent of its contributed tax revenue be returned.

Constitutional expert Shad Saleem Faruqi told The Straits Times that the regent’s assertion is less about constitutional rights and more about his aspiration for Johor to gain greater legislative and financial autonomy to empower the state.

“Such fiscal empowerment for a state in Peninsular Malaysia will require constitutional amendments,” said Dr Shad, who is Holder of the Tunku Abdul Rahman Chair at University of Malaya.

Johor’s Trade Investment and Consumer Affairs Committee chairman Lee Ting Han told ST that financial autonomy will allow the state government to transform Johor into a dynamic growth engine beyond Kuala Lumpur.

He said such autonomy would grant the state government increased flexibility to successfully develop the proposed Johor-Singapore Special Economic Zone (JS-SEZ).

“Compared with the more mature area of Kuala Lumpur, Johor has greater potential for economic expansion in the short to medium term.

“The goal is to make Johor an advanced state in terms of gross domestic product growth and productivity level,” he added.

Johor’s goal to become a regional economic powerhouse is underscored by a number of projects including the JS-SEZ, a Special Financial Zone to be set up in Forest City, the Johor Bahru-Singapore Rapid Transit System (RTS) that is slated to be ready by December 2026, and the Sedenak Tech Park.

Malaysian Prime Minister Anwar Ibrahim has said Johor is set to become the country’s most economically developed state in the next one to two years. Currently, Johor ranks as the third-largest economic contributor in Malaysia, behind Selangor and Kuala Lumpur.

S. Rajaratnam School of International Studies’ senior fellow Ariel Tan told ST: “Johor would like to use its political leverage to request the return of a larger share of tax revenue as cultivating the support of Johor voters is also critical for the federal ruling coalition, which hopes to retain political control of the Johor state assembly and the majority of its parliamentary seats.”

She noted that as the current King, Sultan Ibrahim’s support for the prime minister is an important stabilising factor for the federal government.

So far, the federal government’s response to Tunku Ismail’s request for equal partner status and a larger share of tax revenues has been muted.

In a statement on behalf of the federal government on June 12, Communications Minister Fahmi Fadzil stressed that Malaysia was founded on the spirit of federalism that was agreed upon by all states, including Johor.

“The Federal Constitution is the basis that guarantees the rights of the states and determines the relationship between the federal government and state government,” he said.

Johor cannot be recognised as an equal partner to the federal government as it agreed in 1957 to be part of the Federation. In Malaysia’s Federal Constitution, Johor is designated as a state along with 12 other states including Sabah and Sarawak.

However, Sabah and Sarawak are given special grants and autonomy under the Malaysia Agreement 1963 (MA63), which was a treaty signed by the United Kingdom of Great Britain and Northern Ireland, the Federation of Malaya, Singapore, Sarawak, and Sabah, formerly known as North Borneo. Singapore separated from the Federation in 1965.

Similarly, there is no legal obligation for the federal government to return taxes to any state. However, it can choose to negotiate special grants and loans with the state governments.

“Besides Sabah and Sarawak, there is no special provision in the Federal Constitution for compulsory allocation of funds and return of revenues to the state. But Johor can request special grants and loans from the federal government after discussions with them,” said Dr Shad. 

Johor is not alone in asking for a larger share of taxes.

Besides Sabah and Sarawak, which rely on certain constitutional and legal interpretations to claim as much as 40 per cent of taxes levied in their territories, Penang has also proposed this month for the federal treasury to cough up at least 20 per cent of the income derived from the northern state, to be spent on measures like improving transportation links and boosting the property and recreation sectors.

Tunku Ismail said on June 10 that the fund will be used “to maintain the infrastructure and also spend on education and healthcare in accordance to the state’s needs”.

Former deputy minister of international trade and industry Ong Kian Ming told ST that the government is unlikely to accede to these revenue-sharing demands by the states without substantive dialogue about the responsibilities the states would assume in return.

“Without more specific discussion with all of the state governments, these requests will have almost zero chance of being granted,” said Dr Ong.

Should the government consent to these demands for state income tax redistribution, it could adversely affect less developed states by reducing the federal funds available to them, analysts said.

“The transfer of federal funds to state governments must be viewed collectively, considering the development levels, wealth, population and needs of all states,” said Dr Tricia Yeoh, CEO of Institute for Democracy and Economic Affairs.