Malaysia is a federation comprising of 13 provinces and 3 federal districts. Each province is headed by a swayer known as the Sultan or the Yang Di Pertuan Negeri. The Conference of Rulers which is represented by the 9 Sultans will elect a Yang Di Pertuan Agong who will be the supreme caput of the federation for a period of 5 old ages.
The Federal Constitution of Malaysia provides clear separation of power between the legislative, judiciary and executive authorization. The executive authorization or the authorities has 3 degrees viz. the federal authorities, the province authorities and the local authorities. The federal authorities is chosen from the bulk party of the House of Representatives headed by the Prime Ministers and supported by the Cabinet of Ministers. The province authorities is headed by the Chief Minister who is chosen from the bulk party of the State Legislative Assembly. The local authorities, on the other manus, is elected by the province authorities and comprises of metropolis councils, municipal councils, territory councils and modified local governments.
There is a clear line of distribution of executive, legislative and fiscal power and duties between the federal and province authorities as provided under the 9th Agenda of the Federal Constitutions. Harmonizing to Anuar, A.R. ( 2000 ) , the federal authorities holds bulk of the distribution of power and duty and therefore dramas a larger function than the province authorities. Therefore, the federal authorities besides plays an of import function in the economic development and the transmutation of the provinces.
Distribution of Power and Duties
Coincident List ( Federal-State )
External personal businesss
Defense of the Federation
Civil and condemnable jurisprudence and process and the disposal of justness
Federal citizenship and naturalisation ; foreigners
The machinery of authorities, capable to the province list
Trade, commercialism and industry
Transporting, pilotage and piscaries
Communicationss and conveyance
Federal plants and power
Surveies, enquiries and research
Medicine and wellness including sanitation in the federal capital
Labour and societal security
Social welfare of the natives
Professional businesss other than those specifically enumerated
Holidays other than province vacations ; criterion of clip
Control of agricultural plagues ; protection against such plagues ; bar of works diseases
Newspapers ; publications ; publishing houses ; publishing and printing imperativenesss
Theaters ; film ; cinematograph movies ; topographic points of public amusement
Co-operative societies ;
Prevention and extinguishment of fire, including fire services and fire brigades
All affairs associating to the Federal Districts
Islamic jurisprudence and Malay imposts
Agribusiness and forestry
Servicess of a local character
State plants and H2O
Machinery of the province authorities
Creation of offenses for province intents
Inquiries for province intents
Indemnity for province intents
Turtlenecks and rivering fishing
Libraries, museums, antediluvian and historical memorials and records and archeological sites and remains
Addendum for East Malaysia
Native jurisprudence and usage
Incorporation of governments and other organic structures
Ports and seaports
Cadastral land studies
In Sabah, the Sabah railroad
Water supplies and services
Social public assistance ; societal services ; protection of adult females, kids and immature individuals
Protection of wild animate beings and wild birds ; National Parkss
Animal farming ; bar of inhuman treatment to animate beings ; veterinary services ; carnal quarantine
Town and state planning
Vagrancy and itinerant peddlers
Public wellness, sanitation and bar of diseases
Drain and irrigation
Rehabilitation of excavation land and land which has suffered dirt eroding
Fire safety steps and fire safeguards in the building and care of edifices
Culture and athleticss
Housing and commissariats for lodging adjustment ; betterment trusts
Water supplies and services
Preservation of heritage
Addendum for East Malaysia
Adulteration of groceries and other goods
Transporting under 15 registered dozenss
The production, distribution and supply of H2O power and electricity generated by H2O power
Agricultural and forestry research, control of agricultural plagues and protection against such plagues ; bar of works diseases
Charities and charitable trusts and establishments
Theaters ; film ; cinematograph movies ; topographic points of public amusement
Elections of the province assembly
Beginning: The Federation Constitution of Malaysia
The federal authorities will administrate the major public maps, has unlimited revenue enhancement and adoption powers, and autocratic surpluss which includes the broad ranging exigency powers. Their chief maps are chiefly to guarantee stabilisation, distribution and equity and undertake national development planning. The federal authorities are said to hold the capacity and resources to transport out their map expeditiously as they economic system of graduated table. ( Anuar A.R. ( 2000 ) ) .
The province authorities is chiefly responsible for affairs associating to lands, agribusiness, forestry, plants, H2O, local authorities and local populace services. The local authorities carries out administratively the work on behalf of the province authorities and provides services that are local specific such as H2O supplies ; decline aggregation, care of drainage, sewage intervention, fire services, street lighting, markets, Parkss, athletics installations and community centres, collect assessment revenue enhancement and make by-laws and allowing licences and licenses for trade ( Anuar A.R. ( 2000 ) ) . Although, it is straight under the duty of the province authorities, the federal authorities exercisings high influence over the local authorities. Malaysia has a sum of 151 local governments in Malaysia which are broken down into 1 metropolis hall, 11 metropolis councils, 36 municipal councils, 96 territory councils and 7 modified local governments. The metropolis hall and metropolis councils are headed by Mayor and municipal, territory and modified local governments ( corporation, development board, development authorization ) authorities are headed by a Yang Di-Pertua ( President ) . The councilors are non elected but appointed by the province authorities for a period of 3 old ages.
Therefore, it can be seen that although the province and local authorities are independent from the authorities as provided by the fundamental laws ( de jure ) , in pattern, it has small existent liberty ( de facto ) ( Morrison, 1994 ) .
Federal Fiscal Position
Federal Government Finance ( RM million )
Gross development outgo
( – ) Loan recovery
Net development outgo
Beginnings of Financing
Net external adoptions
Net domestic adoptions
Change in assets
* Revised estimation
Beginning: Ministry of Finance, Malaysia
The federal authorities has the limitless power to impose and roll up revenue enhancements other than the revenue enhancements allocated for the provinces. The chief revenue enhancements from the federal revenue enhancements are company revenue enhancement, crude oil revenue enhancement and single revenue enhancement. They are able besides to borrow from the domestic and foreign market.
Federal Government Revenue ( RM million )
Company revenue enhancement
Individual revenue enhancement
Petroleum revenue enhancement
Cooperatives and others
Gross saless revenue enhancement
Service revenue enhancement
Beginnings: Ministry of Finance
Therefore, with bulk of the gross creative activity ability is owned by the federal authorities, the federal authorities therefore has an upper manus in footings of political power. Most of the revenue enhancements beginnings by the federal beginnings are elastic while the inelastic and undistinguished beginnings of gross remainder with the province authorities. Therefore, the economic developments of the provinces are extremely depended on federal authorities support and transportations.
State Fiscal Position
Part III of the Federal Constitution provides the beginnings of gross that can be collected by the provinces. Their chief beginnings are grosss from land gross revenues, gross from lands, mines and forest, amusement responsibility and Islamic spiritual gross. For East Malaysia, import and excise responsibilities on crude oil merchandise and export responsibility on lumber and other wood green goods is besides an of import beginning of gross.
Part III of the Federal Constitution
Gross from toddy stores. ( all provinces )
Gross from lands, mines and woods. ( quit rents, fees for tol, croping licenses and transition )
Gross from licenses other than those connected with H2O supplies and services, automatically propelled vehicles, electrical installings and enrollment of concerns.
Fees in tribunals other than federal tribunals
Fees and grosss in regard of specific services rendered by sections of the province authoritiess
Gross of town boards, town councils, rural boards, local councils and similar local governments other than: –
Municipalities established under any Municipal Ordinance ;
Those town boards, town councils, rural boards, local councils and similar local governments which have power under written jurisprudence to retain their grosss and command the disbursement thereof.
Grosss in regard of natural H2O.
Rents on province belongings.
Interest on province balances.
Grosss from land gross revenues and gross revenues of province belongings.
Fines and forfeitures in tribunals other than federal tribunals.
Zakat, fitrah, and baitulmal and similar Islamic spiritual gross.
Extra beginnings of gross assigned to provinces of Sabah and Sarawak
Import responsibility and strike responsibility on crude oil merchandises ( Terengganu, Sabah and Sarawak )
Export responsibility on lumber and other wood green goods. ( Sabah and Sarawak )
Royalty levied by the province on any mineral chargeable with export responsibility other than Sn does non amount to 10 % ad valorem.
For Sabah, 30 % of all imposts gross associating to medicate and wellness.
State gross revenues revenue enhancements.
Fees and dues from ports and seaports other than federal ports and seaports.
Grosss in regard of H2O supplies and services, including H2O rates.
Gross from licences connected with H2O supplies and services.
The province can besides roll up other non-tax gross which are licences and licenses, royalties, service fees, net incomes from commercial projects ( such as in H2O, gas, ports and seaports ) , land gross revenues, rents on province belongingss ; and non-revenue grosss include returns, dividends and involvements and grants and reimbursements from the federal authorities ( Narayanan, Hui, Leng ( 2008 ) .
The State besides receives grants and loans from the federal authorities as provided by the Federal Constitutions. Federal grants are provided on the footing of beginning of aggregations, populations, province gross domestic merchandise and other societal and economic indexs and existent costs of undertakings. There are 3 kinds of grants that are being provided: –
Tax- sharing grants that include 10 % of export responsibilities on Sn, Fe and other stuffs that are extracted from the province. These are determined and collected by the federal authorities in footings of construction, rate and percentage-sharing and returns to the province authoritiess on the footing of beginning of sharing of which the province are able to pass the shared gross for its societal and economic development plans.
General-purpose grants that consist of capitation grants, gross growing grants, State Reserve Fund grants and particular grants. These are distributed based on province population and province gross domestic merchandise per capita and province are besides free to pass it.
Specific-purpose grants are based on outgo conditions and consist of route grants, economic development grants, service charge grants and cost reimbursement grants.
( Anuar A.R. ( 2000 ) ) .
The Federal Constitutions via article 111 does non let a province to borrow from other beginnings other than the federal authorities or from a bank and other fiscal beginnings for a period of 5 old ages capable blessing from the federal authorities. Loans are taken merely for capital disbursement and are chiefly used to finance agricultural and rural development undertakings, industrial estates, low cost lodging, H2O supply and other assorted outgo. The province authorities is besides limited in footings of its ability to warrant loans. Given such conditions, the province authorities will happen it hard to raise debt domestically from the fiscal market and are restricted to raise fund externally every bit good.
State Governments Consolidated Finance ( RM million )
Water supply fund
Net development outgo
Beginnings of Financing
Net federal loans
Change in assets
* Revised estimation
Beginning: Ministry of Finance, Malaysia
Anuar, A.R. ( 2000 ) reference that there exists a horizontal ( state-to-state ) and perpendicular ( federal-to-state ) instabilities. Most of the gross and outgo are chiefly centralized at the federal authorities. Based on World Bank informations, the province and local authorities ‘s gross and outgo merely account to 15 % and19 % severally to the entire gross and outgo in 1997. Besides, from the period 1972 to 1997, merely in 3 old ages ( 1976, 1987 and 1991 ) has the per centum of sub-national grosss to entire gross bigger than the per centum of sub-national outgo to entire outgo. This provides that the province authorities should to a great extent depend on grants and loans from the federal authorities to make full in the financial spread. However, based on the information for perpendicular instability as provided by the World Bank Fiscal Decentralization Indicators which computes the grade to which sub-national authoritiess rely on cardinal authorities grosss to back up their outgos as measured by inter-governmental transportations as a portion of sub-national outgos, it shows that there is a worsening tendency in dependence in transportations to back up the province outgo.
Beginning: World Bank
Anuar, A.R. ( 2000 ) besides highlighted that there appears to be disparity between the provinces in footings of gross bring forthing resources. States chief gross chiefly comes from wood, land and minerals. However, non all provinces have sufficient land gifts or important forest militias. Not all provinces besides are rich in footings of minerals such as Sn in Perak, crude oil in Sabah, Sarawak and Terengganu. Besides some provinces which are chiefly based on spiritual political basicss are unable to bring forth much income from amusement as compared to the more broad provinces of Selangor, Johor and Penang. Furthermore, province revenue enhancements which are chiefly based on forest, lands and minerals are inelastic as it does non depend on any economic growing such as income revenue enhancement and trade revenue enhancements. Therefore, the province restrains itself from passing more based on its ain gross to maintain the financial spread integral. This limitations cause their fiscal liberty to decrease.
Therefore, the grants provided were unable to work out the horizontal instabilities as evidenced from the different fiscal capacities of the provinces. This is because the grants are given non based on fiscal demands but instead based on a certain set mechanism or expression. As the province economic system continues to turn, the gross of the provinces did non increase in tandem but the outgo continues to turn to provide for the services and development plans of the province. Besides the mechanism or expression used has money semblances as it does non hold any monetary value accommodation factors for costs and rising pricess and hence do non run into with the original aims. Therefore, these inter-governmental transportations must be reviewed often to guarantee that the allotment provided is able to work out the perpendicular and horizontal instabilities. There is a demand to better the present system of inter-governmental transportations.
In stead of the federal authorities gross capableness, the federal authorities participates actively in the development of the province planning by directing federal sponsored regional development undertakings to the province and the puting up of the National Finance Council ( NFC ) as required by the Federal Constitutions. In a manner, development planning is done at the federal authorities degree and the provinces merely act as an execution bureaus. The NFC manages and coordinates the fiscal direction of the provinces and affairs associating to the federal-state fiscal affairs. The federal authorities is to confer with the NFC on affairs associating to: –
The devising of new federal grants to the provinces.
Propose to present a measure changing the rates of the capitation grant or impacting the reception by a province of the export responsibility on Sn or other minerals produced in the province.
The assignment of the provinces of the whole or any part of the returns of any federal revenue enhancement or fee.
The one-year loan demands of the federal and province authoritiess and the exervise of their adoption powers.
The devising of loans to the provinces.
The devising of national development programs.
Narayan, Hui, Leng ( 2009 ) reference the limited gross capableness and the deficiency of borrowing powers made the provinces to a great extent dependent on the federal authorities for development financess. Therefore, it is possible, that the federal authorities is able to do the provinces that voted the resistance party wage by cut downing and detaining the federal fund expenses. The provinces would at the same clip be unable to renegociate the footings because of many obstructions that is along the manner.
In the yesteryear, it has non been every bit issue as at any one clip, non more than 2 provinces were in the manus of the resistance opinion. Hence, Malaysia was more like controlled by a individual party whether it is decentralized at the federal-state degree. However, the last election in 2008, the federal authorities party lost 2/3 of its bulk in parliament and lost 5 provinces to the resistance squad. Most of the lost provinces such as Perak, Penang and Selangor were provinces that are rich in footings of minerals, land and amusement revenue enhancements. It has been seen that the federal authorities has by-passed the payment of financess to the province authorities. An illustration noted that the Entrepreneurial and Cooperative Development Ministry has ordered Mara, instead than the State Economic Development Corporations to pay out financess for federal undertakings under the ministry and this deprived the provinces of gross equivalent to 5 % of the value of the federal undertakings implemented in the provinces ( The Star, 27 April 2008 ) . From the province authorities consolidated finance histories, it can be noted that the province estimated gross bead by 4.8 % in 2009 because the federal grants to province authorities dropped 41.8 % . At the same clip, the operating and development outgo continues to turn at a dual digit growing rate of 11.4 % and 12.1 % severally in 2009. Therefore if this tendency continue to prevail, and outgo continue to turn quickly while the federal grants continue to be restricted, the provinces may see relentless shortages emerging in the operating budget. Besides, note that the province development outgo which are of import to increase the productiveness capacity of the economic system
Local Government Fiscal
Phang, S.N. ( 2008 ) reference that the local authorities merely contributed approximately 1 % of GDP. She mention that there exists a job with the state-local relationships because the province authorities is unable to supply support to the local authorities. Therefore, they rely on federal support and therefore supply the federal authorities more support in its control. The Local Government Act 1976 and the National Council for Local Governance ( NCLG ) further strengthen the terms of the federal authorities. The NCLG as provided by fundamental laws provide that it can explicate policies for the publicity, development and control of local authorities throughout the federation and for the disposal of any Torahs.
The puting up of the local authorities which was meant to better the efficient and effectual proviso of services to its people had met with issues of which it is unable to present what it was meant to make. Therefore, although it is closer to the people, they were unable to present what the community want, therefore, there is a spread between the demands of the people and the public presentation of the authorities. There has besides been a tendency of which the federal authorities alternatively on farther decentralizing, a tendency towards recentralizing and denationalization ( Phang and Beh, 2006 ; Kuppusamy, 2001 ) . Furthermore, the federal authorities provides responsibility for the local authorities in countries that they are non mandated to make in the first topographic point that is burdensome to the local authorities. Examples of these countries are in the demand to cut down poorness and offense rate. These extra duties have a cost in the local authorities fiscal public presentation and human resources. Therefore, the public presentation of the local authorities is this country is by and large bad and its relationship with the people is delicate as they are frequently criticized over holds, hapless attitude, weak enforcement and haughtiness. Their demand for fundss and support from the federal authorities are ignored. It can be concluded that its failing is in finance, service bringing and community engagement. the lone manner to better the transparence, efficienct and answerability is to hold local authorities elections so that councillars can be elected.
Therefore, with the authorities hierarachy system that is being adopted, the local authorities is unable to prosecute freely with the local community. The deficiency of political decentalisation causes the relationship between the people and the local councils to be strained as any execution of administrative decentalisation with sufficient political reforms with consequence in formal harmoniousness but informal strife ( Phang 2006 ) the system lacks the necessary nexus between decentalisation and engagement through demorcratic representation ( gaventa 2004 ) .
Shah, A. ( 1999, 2005 ) said Malaysia adopted a ‘client ‘s charter ‘ that provided service criterions and a citizen resort in the event of non-compliance of a authorities bureaus, and this has helped the populace sector to reorient itself toward service bringing and transforming the civilization of administration. Therefore, this clients ‘ charter empowers citizens to demand answerability from the authorities if specified service criterions are non met. ( Anwar Shah and Mark Schacter ( ) )
Transparency International gave a corruptness perceptual experience index ( CPI ) of 4.5 ( 0 = most corrupt, 10 = most clean ) in 2009 and ranked Malaysia 56th out of the 180 states. The crisp diminution in CPI from 5.1 in 2008 were mostly attributable to the small advancement in battling corruptness and the deficiency of political will to implement effectual anti-corruption steps. The Malayan Anti-Corruption Commission ( MACC ) seems to be concentrating on resistance politicians and on not-important people.
Beginning: Transparency International
Anuar, A.R. ( 2000 ) suggested that the broad perpendicular and horizontal instabilities can be reduced by implementing the undermentioned policies: –
Federal grants and allotments.
Transfering more province maps or duties to the federal authorities.
Tax degeneration by increasing the financial liberty of the province authoritiess by supplying a redistribution of revenue enhancement powers from the federal to the provinces.
Changing the ratio of distribution under the revenue enhancement gross sharing agreements.
To supply province authoritiess free to prosecute revenue enhancement and outgo policies in line with their duties and to foster beef up provinces ‘ function in the publicity of regional economic growing and stableness. To cut down the federal authorities ‘s strong engagement in province development planning and to disenable the constitution of the NFC.
To better the revenue enhancement sharing agreements between the federal and the provinces by giving the provinces authorities greater budgetary flexibleness and certainty, without hindering the overall aims of economic policy, national revenue enhancement uniformity and revenue enhancement effectivity. The bing agreement of sharing mineral resources revenue enhancements should be extended to income and trade revenue enhancements. This sharing will give all provinces a guaranteed beginning of gross which are closely related to the motion of concern and economic growing.
To do equalisation payments to the provinces with nonexempt capacity below the all province criterion. The affected province should have plenty transportation to convey them to an acceptable per centum of the all province norm. The transportation should be based on the size of the province revenue enhancement based and possible revenue enhancement gross.
Phang ( 2008 )
Civil service to relook at its work manual and cut down burdensome processs.
Absence of transparent method for public engagement and audience. Peoples wants to be involved in the determination doing procedure of its local authorization and hesitates to accept determinations which appear bossy and viewd as top-down directives, ( ministry of lodging and local authorities and economic planning unit, 2006 ; phang 2006 and kaur 2005 ) .
Tanzi, V. ( 2002 ) “ Pitfalls on the route to financial decentalisation ” in Ahmad, E. and V. Tanzi erectile dysfunction ( 2002 ) Pull offing Fiscal Decentralization, Routledge
What do you larn as keys for successful decentalisation?
What danger may decentralization affect?
Do issues raised in the documents apply to your state ‘s experience ( or treatment ) of financial decentalisation?
Gurgur, T. and A. Shah ( 2002 ) Localization and corruptness: Panacea or Pandora ‘s box? in Ahmad, E. and V. Tanzi erectile dysfunction ( 2002 ) Pull offing Fiscal Decentralization, Routledge
Does financial decentalisation addition or diminish corruptness?
How make “ establishments of answerability ” of local authorities interact with corruptness after decentalisation?
Do issues raised in the documents apply to your state experience ( or treatment ) of financial decentalisation?
Shah, A. ( 2007 ) Federalism and macroeconomic direction, A. Shah ed Macro Federalism and Local Finance, the World Bank, 2008
What is the potency of financial decentalisation for bettering macroeconomic public presentation?
What is your position on this issue ( based upon your cognition of economic theories and/or experience from your state? )
Shah, A. ( 2007 ) A Practitioner ‘s Guide to Intergovernmental Fiscal Transfers, Boadway, R. and A. Shah erectile dysfunction. Intergovernmental Fiscal Transportations, the World Bank, 2007
Summarize normative functions of intergovernmental transportations in decentalisation epoch and address practical consideration of implementing them in the context of developing and passage economic systems