KUALA LUMPUR Malaysia must slash taxes and encourage talent from overseas to boost the country's flagging foreign investment, economists urge.

The call comes as Kuala Lumpur prepares to announce new strategies to attract hi-tech multinational firms crucial for economic growth.

Economic pundits say Malaysia has to introduce attractive incentives across the board to compete with neighbouring Singapore and Hong Kong for foreign direct investments (FDIs).

Nizam Idris, regional economist with Singapore-based IDEA Global, said Kuala Lumpur must cut tax to beat off the competition.

"Corporate tax in Malaysia is way above Singapore and Hong Kong," Nizam told AFP .

Corporate tax in Singapore is as low as 16 percent while in Malaysia it is 28 percent.

Nizam added that barriers stopping the influx of foreign expertise must be reduced. The talent-base would make it viable for companies like Microsoft to consider setting up plants in Malaysia.

Unveiled in 2003 budget

Prime Minister Mahathir Mohamad last month said the new strategies to bring FDIs to Malaysia would be unveiled in the 2003 budget to be tabled on September 20.

Mahathir, who is also the finance minister, said there was reason for concern about the stiff competition from other countries. Malaysia hopes to achieve its projected 3.5 percent growth this year.

Nizam said Malaysia could provide tax holidays and reduce taxes for expatriates to encourage them to work in the country.

"Malaysia can cut the taxes gradually to 20 percent over a five-year period since the budget deficit of four-five percent is very high," he said.

Malaysia, Nizam said, has to urgently address its shortage of skilled labour, adding that the ringgit peg made it difficult for investors to bring in and repatriate money.

"I am concerned about the quality of the workforce," he said.

The ringgit was fixed to the greenback as part of capital controls imposed in 1998, when the economy plunged into a recession. All the curbs apart from the peg have since been lifted.

Crucial to Malaysia

Ramon Navaratnam, corporate advisor to construction giant Sunway Group, told AFP that FDIs are crucial to Malaysia since it is the 17th largest trading nation in the world.

"FDIs bring it cutting-edge technology, research and development know-how along with markets for our exports," he said.

Navaratnam said Malaysia's domestic investors have capital but lack technology and market access.

Malaysia, he said, should look again at its sensitive ownership regulations to woo FDIs.

"Some sectors should be allowed 100 percent foreign ownership and match the incentives offered by Singapore and Hong Kong," he said.

Navaratnam said besides incentives Malaysia must ensure political stability, security and reduce corruption and the hijackings of bonded trucks carrying mainly electronic chips.

"Today, it is not just monetary incentives, total comprehensive environment also matters," he said.

The United States and Japan continue to rank as the Malaysia's top two spenders, with total investments of 3.3 billion each (868 million dollars), the ministry of International trade and industry announced in its 2001 report.