FEDERAL SYSTEM

1. The areas in which the Constitution permits affirmative action in favour of the Malays
and the natives of Sabah and Sarawak.
Article 153 privileges
- A scheme of preferential treatment for Malays and the natives of Sabah and Sarawak
in a number of specified areas such as:
- Positions in the public service,
- Scholarships, educations or training privileges or special facilities,
- Permits or licenses for the operation of any trade or business required by
Federal law,
- Places in institutions of higher learning.
Malay Reserve Land
- Article 89: Malay Reserve Lands cannot be de-reserved except by a State approved by
special majorities in both the State Assembly and the Parliament.
- Article 90: Special protection on customary lands in Negeri Sembilan and Melaka and
Malay holdings in Terengganu.
Malay Regiment
- Article 8(5)(f): It is permissible to restrict enlistment in the Malay Regiment to Malays.
State Leadership positions
- In all States except Melaka, Penang, Perak, Sabah and Sarawak, the Menteri Besar
must be Malay and a Muslim.
- In Melaka, Penang, Perak, Sabah and Sarawak, the State Secretary must be Malay and
Muslim.
Aborigines
- Article 8(5)(c): Provisions for the protection, well-being or advancement of the
aboriginal people of Malaya including reservation of land or a reasonable proportion
or suitable positions in the public service are permitted.
Natives of Sabah and Sarawak
- Article 161: The use of English and native languages is allowed.
- Article 161A(5): The reservation of land for natives is allowed.
- Article 161B: Non-residents are restricted from practicing law in the courts of Sabah
and Sarawak.
2. Limits to the “affirmative action” policies under Article 153.
Article 153(1) enjoins affirmative action in favour of Malays and the natives of Sabah and
Sarawak by providing that “it shall be the responsibility of the YDPA to safeguard the special
position of the Malays and native of any of the States of Sabah and Sarawak and the legitimate
interest of other communities. Nevertheless, Article 153 does not provide total freedom to
the Executive to prefer Malays over non-Malays.
- Affirmative action is allowed only in sectors, services and facilities explicitly mentioned
in the Federal and State Constitutions.
- Article 153(1) enjoins the YDPA to safeguard the legitimate interests of other
communities
- Clauses (4), (7) and (8) expressly state that in safeguarding the special position of
Malays and natives, no person can be deprived of any public office, scholarship,
educational or training privilege, special facility of any right, privilege, permit or
licence already held by him or her.
- Article 153(7): The heirs, successors or assignees of a license or permit holder cannot
be refused renewal if the renewal might reasonably be expected.
- Article 153(9): Nothing in Article 153 permits Parliament to restrict business or trade
solely to Malays or natives.
- Article 153(5) provides that Article 153 does not override Article 136 which requires
all persons of whatever race in the same grade of service to be treated impartially.
- Article 89(2): When any land is reserved for Malays, an equal area shall be made
available for general alienation.
- Article 89(4): Non-Malay held land is forbidden from being declared as Malay reserved
land.
- Article 153(8A): Except in the area of education, reservations and quotas permitted by
the Constitution are directed primarily at public sector activities.
- Affirmative action policies are permissible within the agencies of the federal and state
government.
- Article 12(1): No discrimination on the ground of religion, race, descent or place of
birth in the administration of any education institution maintained by a public
authority.

3. The concept of fiscal federalism.

Fiscal federalism is the equitable distribution of financial resources between the Federation
and the States.
Under the Federal Constitution, there is a clear division of financial powers between the
Federal and State governments even though the balance is tilted heavily in favour of the
Federal government.
 - Federal revenues
- Most of the profitable sources of income like income tax, customs and excise
duties etc. are assigned to the Federal exchequer.

- Federal expenditure
- Most of the difficult items of expenditure such as national defence, national
security, armed forces, prisons etc. are in the hands of the Federal
government.
- The Federal government has to pay for all 27 items in the Federal List, while
the State governments have to pay for all the 13 items in the State List. Items
in the Concurrent List are paid for by whoever exercises the power in question.

- State revenues: The Constitution guarantees certain sources of revenue to the States.
- Capitation grants: An annual mandatory grant by the Federal government to
each State based on its population as under Article 109 and the 10th Schedule.
- State road grant: The Federal government is required to pay each State a
compulsory road grant to cover the average cost per mile of maintaining State
roads under Part II of the 10th Schedule.
- Taxes and fees: Each state receives 10% or more of the export duty on tin
produced in the state under Article 110(3); States are entitled to receive all
taxes and fees from entertainment places, water supplies, rent on State
property, fines and forfeitures in State courts, and Islamic religious revenue.
- State Reserve Fund: Under Article 109(6), each year the Federal government
deposits into the fund certain amounts allocated to the States for purposes of
development.
- Conditional grants: Under Article 109(3), the Federal government allocates
further conditional grants to supplement the States’ own domestic revenue.
- Loans: Under Articles 111(2) & (3), States are not allowed to raise or borrow
money except from the Federation or a federally approved bank.
However, Sabah and Sarawak enjoy fiscal privileges that are not available to the other States.
- Article 112B: Sabah and Sarawak are allowed to raise loans for their purposes with the
consent of Bank Negara.
- Articles 112C & D: Sabah and Sarawak are allocated special grants to meet their needs
above and beyond what other States receive.
- Article 112C & Part 5 of the 10th Schedule: Sabah and Sarawak are assigned eight
sources of revenue not permitted to other States, which include import and excise
duty on petroleum, export duty on timber and forest products, and export duty on
minerals.
4. Basic characteristics of the federal system that are observed in Malaysia.
Association of States
- All the States in Malaysia have united to form a central government for the
administration of certain affairs, and therefore forms a Federation, but retain
independence of action in other matters.
Duality of government
- There is a central government charge with the administration of affairs of general
concern, while the States in Malaysia have their own elected government that has
authority over certain affairs.
- Thus, each Malaysian is subject to two governments.
Semi-autonomous units
- State governments are not legally or politically subordinate to the central government
in respect of matters assigned to them.
- The States that form the federal union do not sacrifice their authority in all matters to
the Federal government.
- State governments, while still retaining their individuality, seek the advantage of a
common government in matters of general interest.
Demarcation of powers
- There is a constitutionally defined division of legislative, executive, judicial and fiscal
powers between the Federal and State governments.
- E.g: Article 74 clearly divides the legislative powers of the Federal and State
governments.
Supreme Constitution
- The federal-state allocation of powers is safeguarded by adopting a written
Constitution which is accepted as the highest law of the lad.
Judicial Review
- Article 128(1) confers power upon the superior courts to rule upon disputes and to
declare null and void any legislative or executive action that violates the constitutional
division of competence between the Federal and State governments.
- E.g: Govt. of Malaysia v Govt. of Kelantan: A Federal challenge to the
government of Kelantan’s executive act of raising a loan without federal
permission failed in the Federal Court.