Tutorial Question

Question 1
Four main types of grant provided to the State Government are Capitation Grant, State Road Grant, State Reserve Grant and Revenue Growth Grant.
First is Capitation Grant. It’s under of Article 109 (1) (a) of the Federal Constitution. The aim of the grant is to help the state in their operating expenditure. Capitation grant is based on the population of the states. The highest population in the state, the highest grant they get for their operating expenditure. Section 1 part 1 of the Tenth Schedule explains how they calculate the grant as follows. 1) The capitation grant payable to each State in respect of Financial year shall be at the following rates. a) For the first 100000 persons at the rate of RM72 per person b) For the next 500000 persons at rate of RM10.20 per person c) For the next 500000 persons at rate of RM10.80 per person d) For the remainder at the rate of RM11.40 per person

And shall be calculated based last population census:

Provided that if the last census was taken one year before the beginning of the Financial Year, the grant for that particular year shall be based on the population as determined by that population census.
The capitation grants can be changed in accordance to Article 109(2) of the Federal Constitution but if it reduce, that should not result in the state getting lesser 90% of the capitation grant that it received previous year.
Second is State Road Grant. It’s given for maintaining the State road in the State under Article 109(1)(b) of the Federal Constitution. The calculation of the grant was stated in section 2, part 11 of the Tenth Schedule of the Federal Constitution. 2) The Road State Grant payable to each of the States of Malaya in respect of the financial year should be calculated by multiplying a) The average cost to a State of maintaining a mile of State Road, at the minimum standard determined for State Road in those State by the Federal Government after the consultation with the National Finance Council: by b) So much of the mileage of state roads in the states as qualifies for grant.
According to Section 5, Part II of Tenth Schedule of the same act, State Road is any public road other than Federal Road and it also consist of maintenance that can be improved the state road.
Third is State Reserve Fund is given to the States applying for the Grant. The purpose of the fund is to assist State Government that have deficits in their current accounts or for development purpose. It’s given based on economic development, infrastructure and well being of the respective States. The grant given by federal Government after consultation with the National Finance Council. The State Reserve Fund is allocated under the provision of Article 109(6) of the Federal Constitution c) In respect of every financial year such sum as the Federal Government may, after consultation with the National Finance Council, determine to be necessary

And the federation may from time to time, after consultation with the National Finance Council, make the grants out of the State Reserve Fund to any State for the purpose of development or generally to supplement its revenue.
Lastly is Revenue Growth Grant. It’s given to the State Government whenever there is a growth or increase by more than 10% in the revenue of federation in any financial year compared to last year. This is because the states also make the contribution to the total of the growth of federal. This grant is according to the Revenue Growth Grant (Amendment) Act 1980.
For example, for last year the financial year for the federal is 1 billion, so 10% of the 1 billion should be distributed to the State.

Question 2(a)

* State Reserve Fund

The State Reserve Fund is given to the States applying for the grant. The purpose of the fund is to assist State Governments that have deficits in their current accounts of for development purpose. This fund provides grants based on the economic development, infrastructure and well-being of the respective States. The amount to be contributed into the fund is determined by the Federal government after the consultation with the National Finance Council. The State Reserve Fund is allocated under the provision of Article 109(6) of the Federal Constitution:

The Federation shall pay into a fund, to be known as the State Reserve Fund

(b) In respect of every financial year such sum as the Federal Government may, after consultation with the National Finance Council, determine to be necessary,

And the Federation may from time to time, after consultation with the National Financial Council, make the grants out of the State Reserve Fund to any State for the purposes of development or generally to supplement its revenues.

Question 2(b)

* To provide financial and accounting procedures * To enforce the provisions of the federal constitutions relating to finance * To provide guidelines on the collections, custody, and payment of public monies.
Question 2(c)
The provision for virements is stated in Section 15 ( 4) of the financial procedures act 1957. Virement is a transfer allocation between sub-heads within the same head. For example, transfer of virements between different departments of the same ministry. Virements need prior approval from the treasury of state financial authority to alter the proportions assigned to the subdivision which may be the deficient or any new subdivision further sum out of any surplus arising from any other subdivision of the purpose provided that the amount appropriated under any purpose of expenditure by a supply act or enactment is not exceeded.
Under Section 15 A, the minister or the Menteri Besar or Chief Minister, may appoint a controlling officer to control the expenditure authorized under each purpose of expenditure provided for any financial year in the estimate and to be the chief accounting officer in respect of all public monies collected, received and disbursed and all public stores received, held or disposed of by or on account of the department of service.
Section 15 of the Financial Procedure Act 1957, requires estimates to be prepared in order to show clearly the division and subdivision of expenditure proposed, the amount expected to be received or spent for the year and purpose of such expenditure. If it is for the purpose of personal emolument, it should show the approved number of public offices for each purpose of expenditure.

Question 3 a) Explains the meanings of payments, estimates and virements according to the Financial Procedure Act 1957. Quote the relevant sections from the Act.
In Section 13 of the Financial Procedure Act 1957, any money to be withdrawn from the funds must be by way of warrant. A warrant is a letter of authorization either from the Minister for the Federal or Menteri Besar .
Section 15 of the Financial Procedure Act 1957 requires estimates to be prepared in order to show clearly the divisions and subdivisions of expenditures proposed, the amount expected to be received or spent for the year and purpose of such expenditure. If it is for the purpose of personal emolument, it should show the approved number of public offices for each purpose of expenditure.
Virement is a transfer of allocation between sub-heads within the same head. For example, transfer of virements between different departments of same ministry. Virements need prior approval from the Treasury or State Financial Authority to alter the proportions assigned to the subdivision which may be deficient or any new subdivision a further sum out of any surplus arising on any other subdivision of the same purpose provided that the amount appropriated under any purpose of expenditure by a Supply Act or Enactment is not exceeded.
Under Section 15A, the Minister or the Menteri Besar or Chief Minister may appoint a controlling officer to control the expenditures authorized under each purpose of expenditure provided for any financial year in the estimates and to be the Chief accounting officer in resect of all public moneys collected, received and disbursed and all public stores received, held or disposed of by or on account of the departments or service.

b) Based on the Financial Procedure Act 1957, discuss the various ways on how Federal government funds and State government funds can be invested. Quote the relevant sections from the Act.
Provisions in Section 8 of the Financial Procedure Act 1957 stated that all money paid to the Consolidated Fund should be kept in banks according to the Treasury requirements. It has been explained that both the money of the Federation and State governments may be invested in various ways.
Section 8(3)(a) stated that: money standing to the credit of the Federation with any bank, or otherwise held by the Federation, may be invested by the Minister- I. On deposit in any bank II. In any of the investments authorized by the Trustee Ordinance III. In any joint fund maintained by the Crown Agents for such investment
And the investments together with any interest received there form shall form part of the Federal Consolidated Fund.
Section 8(3)(b) further explained about the investments of States public money. Moneys standing to the credit of a State with any bank or otherwise held by the State, may be invested by the State financial authority: I. On deposit in any bank II. In securities issued or to be issued by the Federal Government
And the investments, together with any interest received there from, shall form part of the Consolidated Fund of the State.

c) Briefly explain the Federal and State government financial relationship in terms of borrowing powers only.
Borrowings by the government are strictly regulated as this will increase public debts and have major implications on the ability of the government to meet its objectives. The Federal Government shall not borrow except under the authority of Federal Law. The State governments are further restricted to borrow only from the Federal government.

Question 4(a)
The importance of financial systems and procedures is to provide framework approved by the Parliament, give detail rule on how to record finance or fund and basis for the preparation of government financial statements.
Question 4(b)
The first major grant payable under the Federal Constitution is capitation grant. This grant is payable by virtue Article 109(1)(a) of a Federal Constitution. The purpose is to assist the states in their operating expenditure. Capitation grant is based on the population of a particular state. The state with the most populace will receive the highest grant. Section I part 1 of the Tenth Schedule specifies the rates at which this grant should be calculated:
The capitation grant payable to each state in respect of a financial year shall be at the following rates: (a) For the first 100,000 persons at the rate RM 72.00 per person ; (b) For the first 500,000 persons at the rate RM 10.20 per person (c) For the first 500,000 persons at the rate RM 10.80 per person (d) For the remainder at the rate of RM11.40 per person,

And shall be based on the annual population projections of the State as determined by the Federal Government and calculated as of the last population census:
Provided that if the last census was taken one year before the beginning of the financial year the grant for that particular year shall be based on the population as determined by that population census.
The capitation grant rates can be changed in accordance to Article 109(2) of the Federal Constitution but if it is reduced, the reduction should not result in the State getting lesser than 90 percent of the Capitation grant that is received in previous year.
The second is State Road grant. It is given for the purpose of maintaining the State road in the State. The grant is based on Article 109(1)(b) of Federal Constitution. The calculation for the amount of State road grant is stated in Section 2, Part II of Tenth Schedule of the Federal Constitution: The State road grant payable to each of the States of Malaya in respect of financial year shall be calculated by multiplying (a) The average cost to a State of maintaining a mile of State road, at the minimum standard determined for State roads in those Stats by the Federal Government after the consultation with the National Finance Council: by (b) So much of the mileage of State roads in the State as qualifies for grant.

According to Section 5, Part II of Tenth Schedule, State road means any public road other than Federal road that the public has access. Meanwhile maintenance of State roads means the preservation, upkeep and restoration of State roads, roadside furniture, bridges or culverts forming part of thereof or connected therewith as nearly as possible in their condition as constructed or as subsequently improved. The third is State Reserve Fund. It is given to the States applying for the grant. The purpose of grant is to assist State Government that has deficits in their current accounts or for development purpose. This fund provides grants based on the economic development, infrastructure and well-being of the respective States. The amount to be contributed into the fund is determined by the federal Government after the consultation with the National Finance Council. It is allocated under provision of Article 109(6) of the Federal Constitution:
The Federation shall pay into a fund, to be known as the State Reserve Fund (c) In respect of every financial year such sum as the Federal Government may, after consultation with the National Finance Council, determine to be necessary,

and the Federation may from time to time, after consultation with the National Financial Council, make the grants out of the State Reserve Fund to any State for the purposes of development or generally to supplement its revenues.
Question 4(c)
Article 99 of the Federal Constitution requires the federal government to submit to Parliament, statements of the estimated receipts and expenditures of the Federation of the following year before commencement of that year and statements of assets and liabilities of the Federation at the end of the last completed financial year.
In the relation of the above article, Article 100 of the Federal Constitution requires expenditures to be included in the supply bill for them to be withdrawn from the Consolidated Fund except charged expenditures, which are treated separately in Article 98 of the Federal Constitution. Supply Bill is known as Supply Act once it has been approved by Parliament. Supply act contains all the approved expenditure budget of the government.

Question 5(a)
According to Article 100 of the Federal Constitution states that the expenditure to be met from the Consolidated fund but not charged thereon, other than expenditure to be met by such sums as are mentioned in Clause (3) of Article 99, shall be included in a bill, to be known as a Supply Bill, providing to the issue from the Consolidated Fund of the sums necessary to meet the expenditure ant the appropriation of those sums for the purposes specific therein. While the Supply Act is with regards to withdrawal of funds, article 104 of the Federal Constitution stated that no money should be withdrawn from the Consolidated Fund except in the manner provided by federal law. The withdrawal is only allowed for the following reasons: Charged Expenditure (Article 98 of the Federal Constitution); authorized by Supply Act (Article 100 of the Federal Constitution) and authorized to be issued under Article 102 of the Federal Constitution.

This means that approval from parliament is required for any expenditure under the article. Besides that, Parliament approval is also needed under Article 102 of the Federal Constitution that covers on any unusual urgency. Thus, supply bill need to be passed in order authorized expenditure for the whole or part of the year. In addition, Article 103 of the Federal Constitution allows parliament to create contingencies fund for an urgent and unforeseen need for expenditure, where there is no other provision allowing for such purpose under the constitution. However, supplementary estimate needs to be presented to parliament and such amount will be included in s supply bill to replace the amount drawn.

Question 5(b)
In accordance to Article 111(1) and (2) of the Federal Constitution, the Federal government shall not borrow except under the authority of federal law. The state government is further restricted to borrow only from the federal government. If the borrowing for the period of less than 5 years, they are permitted to borrow from bank or financial institution approved by the federal government. Sabah and Sarawak have special privileges of which Article 112B of the Federal Constitution allows both states to borrow under the authority of the state law within the state. However it is applicable only if the borrowing has the approval of Bank Negara Malaysia. In addition, Article 111(3) of the Federal Constitution restricts a state from giving any guarantee except under the authority of state law and with approval of the federal government.

Question 5(c)
The National Finance Council established under Article 108 of the Federal Constitution is to provide a venue in which representatives from the federal and the states are to meet and discuss various issues concerning the financial aspect of both parties. This council presently comprises of the prime minister, such other ministers and one representative from each state appointed by the Ruler. The representatives from the state are usually the Menteri Besar and Chief Ministers. A meeting will be presided by the prime minister or his representative. The Federal government is to consult the National Finance Council in respect of the following matters: making of grants by federal to state; assignment of any proceeds of any federal tax/fee; annual loan requirements of federal and state; making of loans to any of the states; making of development plans; matters related to item 7(f) Article 108 of the Federal Constitution by the federal law to be consulted with the Council.

Question 6
a) Article 112 B, C and D of the Federal Constitution are applicable to the states of Sabah and Sarawak. Under Article 112A
The Auditor General shall be submit his reports relating to the accounts of each of the states of Sabah and Sarawak or any public authority exercising powers vested in it by State Law to the Yang Dipertuan Agong and the Yang di-Pertuan Negeri of the state.
Article 112(B) provides special privileges to the States of Sabah and Sarawak whereby the Federal Constitution shall not restrict them to borrow under the authority of State Law. However, they have to get approve by the Central Bank. Special grants and assignment of revenue Sabah and Sarawak were stated in Article 112C of the Federal Constitution. According to this article, the provisions of Article 112D of the Federal Constitution and limitation in the relevant section of the Tenth Schedule:
a) The Federation shall pay grants specified by Part IV to the states of Sabah and Sarawak for each financial year and
b) each of those states should receive all proceeds from the taxes, fees and dues specified in Part V of the schedule, if collected, levied or raised within the states.
Article 112C also states that the amount under Part IV and section 3 or 4 Part V, shall be charged on the Consolidated Fund
Article 112D of the Federal Constitution stated that the review of special grants to the states of Sabah and Sarawak will be carried out by the government of the Federation and of the State or State concerned and if they agree on the alteration or abolition of any of those grants or the making of another grant, it shall be modified by the order of the Yang di Pertuan Agong to give effect to the government.
b) Article 108 of the Federal Constitution is to provide a venue which representative for the federal and states are to meets and discuss various issues concerning the financial aspects of both parties. It's consist of Prime Minister, other ministries and the one representative of each state appointed by the rule. The representative for the state normally by the Chief Minister. A meeting will convene if these conditions arise, when Prime Minister feel that necessary to have the meeting or when there are request from three representative at least once a year. This meeting will conduct by the Prime Minister or his representative.
For example, if States want to make loan, they have to refer to the national finance council first. This is because there have a specific requirement for Federal and State if they to make loan. They cannot make loan without get any consultation from National Finance Council.
The Federal Government should consult the National Finance Council if in respect of making grants by Federal to State, assignment of any federal tax and fee; annual loan requirement of federal and states; making the development plans; matter related to items 7(f) article 108 of Federal Constitution by the Federal law to be consulted with the council