KUALA LUMPUR (Feb 1): While the financial situation of the federal government is often scrutinised, not often do one take a look at the Malaysian states' fiscal health. After all, most of what is deemed as “public service” in this country is provided by the federal government, not the states.

However, looking at the financial statements of all 13 states that make up Malaysia, one could see that the strength of a state’s economy does not necessarily translate into a rich government.

As state government revenues are often associated, or tied to, their control of land and natural resources, such as water, sand, timber, tin, gold, rare earth minerals, crude oil and natural gas, small states are often “penalised” compared to larger, more naturally well-endowed states.

This is even if the state’s economy measured by its gross domestic product and trade performance could be among the biggest in Malaysia.

This raises the question of whether state governments should be allowed to collect more revenues from their own people, rather than just depending on revenues that are tied to land matters and property assessments.

As can be seen with the case of Sarawak, whose revenues shot up in 2020 when it received the green light to collect sales tax on petroleum products, the other states should perhaps be allowed to collect some form of indirect tax that better reflects their economic wealth.

However, the capability of the states to collect indirect taxes, as well as what they will do with the additional funds, would also be in question.

Read the second cover story above and more in The Edge Malaysia this week.

Read also:
Twists in the AI race

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.