‘Move reflects govt commitment to ensuring equitable fiscal distribution across federation’
PETALING JAYA: The Finance Ministry will table the Capitation Grant Bill in the next parliament session to formalise a 25% increase in federal allocations to state governments.
In a written reply to Besut MP Datuk Che Mohamad Zulkifly Jusoh, the ministry said the proposed revision, which was agreed upon during the National Finance Council Meeting chaired by Prime Minister Datuk Seri Anwar Ibrahim on March 6, would involve an additional financial implication of RM547.6 million.
The meeting, which was attended by all menteri besars, chief ministers and the Sarawak premier, agreed in principle to revise and amend the capitation grant rate provided under Article 109(1)(a) of the Federal Constitution, which supports states in managing operating expenditures.
The ministry said the revised rate would require constitutional amendments through the new Act, which is expected to take effect in 2026 and replace the Capitation Grant Act 2002.
It added that the move reflects the government’s commitment to strengthening financial support for state administrations and ensuring a more equitable fiscal distribution across the federation.
Last September, the Finance Ministry confirmed the 25% increase in capitation grants for 2026, in line with the federal government’s financial capacity.
The revised allocation represents an additional RM109.2 million compared with the previous rate, which has remained unchanged for 23 years since 2002.
The grants, distributed to state governments, are intended to enhance essential public services, such as education, healthcare and administrative functions.
According to the ministry, the decision followed feedback from state governments requesting a review of the long-standing allocation rate, citing higher administrative and service delivery costs.
The new system introduces a progressive distribution mechanism based on population tiers, with a 42% increase for the first 100,000 residents, 37% for the next 500,000, 25% for the subsequent 500,000 and 15% for the remaining population in each state.
This progressive approach is designed to ensure fairer distribution, with smaller states such as Perlis and Malacca receiving higher percentage increases, while larger states such as Selangor and Johor receive smaller proportional increases due to their stronger fiscal capacity.
The ministry said this mechanism would help states manage rising costs more effectively while ensuring federal resources are channelled according to each state’s needs and population size.
