Malaysian experts have advised the government to cut taxes to offset a prolonged slump caused by the Iraq war.

Tax cuts would help lift consumer confidence, prevent companies from going into bankruptcy and workers from losing their jobs, they said.

Azrul Azwar, an economist with MIDF Sisma Securities, told AFP that a reduction in personal and corporate taxes would be a big boost to consumer spending.

"I think the government could consider this proposal. With a bigger disposable income, consumers are likely to spend. It is an effective mechanism," he said.

Little option

Economists said the government had little option but to encourage consumer spending, as both foreign direct investment and domestic investment were falling.

The Malaysian Institute of Economic Research (MIER) has cut its 2003 economic growth forecast for Malaysia following the outbreak of Sars to 3.7 percent from an earlier projection of 5.7 percent.

Sars has had an adverse impact o­n tourism, an industry which has helped boost the country's economy in the past few years. Tourism is Malaysia's second largest foreign exchange earner after manufacturing.

ING Financial Markets had trimmed its 2003 forecast for Malaysia to 4.0 percent from 5.0 percent due to the outbreak of the deadly severe acute respiratory syndrome (Sars).

Azrul said the thrust of the government impending financial stimulus package due in May should focus o­n boosting consumer spending and domestic investment.

"It should be announced and introduced as soon as possible," he said.

Azrul said a tax cut, either personal or corporate, would attract foreign expertise and along with them much-needed foreign capital could flow into Malaysia.

Tunku Iskandar Tunku Abdullah, chairman of the Malaysian Association of Tour and Travel Agents, told AFP that most of the travel companies were facing severe cash-flow problems.

"We appeal to the government to suspend immediately the monthly tax payments paid by the companies," he said.

"We are not going to make any profits this year. Companies are now fighting just to remain afloat," he said. "We are in a crisis beyond all proportions."

Financial concessions

Tunku Iskandar said the travel body would meet Acting Prime Minister Abdullah Ahmad Badawi tomorow to explain the crisis faced by its members and seek some financial concessions.

"Members need immediate soft loans to be disbursed as quickly as possible at low interest rates," he said.

Tunku Iskandar said the financial incentives were crucial for the survival and revitalization of the travel industry, adding that many companies have began to adopt pay-cuts and retrench workers. "The stimulus programme has to be introduced now."

Another economist with a foreign Asian bank said that a tax cut would be an appropriate way to generate growth.

"Weak consumer spending is slowing the economy. We have to arrest this trend. More disposable income will spur spending," he said.

The economist said the gains from a tax cut would exceed the fall in revenue as it would lift consumer confidence and spending.

Malaysia last month slashed its economic growth forecast for this year to 4.5 percent from 6.0-6.5 percent and announced the easing of foreign exchange rules to woo investors.

The central Bank Negara Malaysia, in its 2002 annual report, warned gross domestic product growth could slide even lower if global economic uncertainties persist. Malaysia recorded 4.2 percent growth recorded last year. - AFP