Can state governments override federal business permits for lotteries?

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State Governments Cannot Override Federal Lottery Business Permits Through Premises Licensing

The Kedah state government cannot override federal business permits for lotteries by refusing to renew premises licences, as this action is deemed unconstitutional and beyond the state's authority. The core of the legal dispute lies in the division of powers under the Federal Constitution, where "betting and lotteries" fall under federal legislative competence, while matters related to "local government" are within the purview of state governments. The Federal Court is being asked to allow Kedah to appeal previous rulings that found its actions unconstitutional.
State Actions Deemed Unconstitutional Encroachment on Federal Authority

The Kedah state government's decision, implemented through its local councils, to cease issuing or renewing premises licences for lottery operators since January 1, 2023, has been ruled unconstitutional. This action was not based on any defects in the premises themselves, such as safety, sanitation, or zoning issues, which are legitimate grounds for local authorities to refuse a licence. Instead, the refusal was a direct consequence of the state government's disapproval of the lottery activity itself, effectively aiming to prohibit a business that holds valid federal licences. The Court of Appeal specifically noted that a local authority cannot leverage its power to regulate premises to prohibit an activity that is already licensed at the federal level.
Federal Constitution Distinguishes Regulatory Powers

The Federal Constitution clearly delineates the legislative powers between the federal and state governments. While states have the authority to legislate on matters concerning local government, which includes regulating the use of business premises based on factors like public order, sanitation, and safety, the regulation of "betting and lotteries" exclusively rests with the federal government. This division means that state governments cannot use their local government powers as a mechanism to ban or effectively prohibit federally licensed activities. The Finance Minister's renewal of annual pool betting licences for lottery companies for 2023 underscores the federal government's continued authorisation of these businesses.
Legal Precedent on Ultra Vires Actions

The legal challenges initiated by lottery companies like STM Lottery Sdn Bhd and ENE (Penang) Sdn Bhd, along with their agents, highlight the principle of "ultra vires," meaning acting beyond one's legal power. The High Court and a majority of the Court of Appeal panel found that Kedah's blanket refusal to grant premises licences was an illegal and irrational act that went against the Federal Constitution. This decision was further supported by the argument that the state must exercise its executive authority without impeding the federal government's exercise of its own authority, as stipulated in Article 81 of the Federal Constitution. Despite holding federal licences, these businesses were unable to operate physical outlets in Kedah due to the state's actions.
Ongoing Legal Battle at the Federal Court

The Kedah state government is currently seeking permission from the Federal Court to appeal the Court of Appeal's decision. The ultimate aim of these appeals is to pursue the objective of stopping lotteries from operating within the state. This legal battle is not about the permissibility of gambling itself, but rather a constitutional question concerning the extent of state government powers and whether Kedah exceeded its authority by encroaching upon a domain reserved for federal legislation and licensing. The outcome will clarify the boundaries of state and federal regulatory powers in Malaysia.

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Can state governments override federal business permits for lotteries?

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