The Malaysian government's proposal to tax foreign-registered vehicles entering the country has prompted strong reactions from business and tourism officials who say it will hurt the economy.

The 20 ringgit (5.43 dollar) fee for foreign vehicles entering Malaysia is part of moves the government is mulling to compensate for losses incurred when Singaporeans and Thais drive over the border to fill up on subsidised petrol.

Fuel prices are rising in Malaysia but at about 1.90 ringgit (51 US cents) per litre for petrol and 1.58 ringgit (43 US cents) for diesel, they are still low compared to the rest of the region.

However, officials and businesses in southern Johor state, which is separated from Singapore by a narrow strait, and northern Kedah state bordering Thailand, said the move would affect tourism and cross-border trade.

Johor state's tourism committee chairman, Freddy Long, said the proposal would have a far-reaching implications and suggested a cap on fuel purchases instead.

"We can limit this to about 10 litres per car. This way, we can enjoy a better balance of benefits without jeopardising Johor's tourism earnings," he was quoted as saying in the New Straits Times Tuesday.

As the gateway into Malaysia from Singapore, Johor's economy is dependent on traffic from the south for tourism and trade, with some 23,000 Singapore-registered vehicles entering Malaysia daily.

Tourist arrivals to Malaysia are highest from the city state, with some 9.6 million Singaporeans visiting in 2005, and the neighbours are major trading partners.

"I hope the government looks into the proposal carefully and listens to Johoreans before implementing it," Johor Tourism Guides Association chair Jimmy Leong was quoted as saying in the Star daily.

Malaysians who commute daily across the border in Singapore-registered cars also said the proposal was unfair.

"We are Malaysians who contribute to the local economy by bringing in foreign exchange. What about our rights to fuel subsidy," engineer Lee Keat Wei who works in Singapore told the New Straits Times.