The government said it will cut its corporate tax rate by 2.0 percentage points in stages over the next two years as part of its expansionary 2007 budget announced today.

Prime Minister Abdullah Ahmad Badawi told parliament that the government will reduce the corporate tax rate from the current 28 percent to 27 percent in 2007 and 26 percent in 2008.

Abdullah said the move is aimed at enhancing the competitiveness of Malaysian firms and to spur the private sector which is "the engine of economic development" in the country.

He said the decision will help reduce the cost of doing business in Malaysia.

Decision lauded

Imran Nurginias, an economist with local brokerage MIDF Sisma, welcomed the decision which he said came as a surprise to market analysts.

"It would definitely have a positive impact on the bigger companies," he said, adding it will allow companies to reinvest more of their income and boost private investment, which in turn could spur economic activity.

"This will also help to cushion (any) fall in consumer spending," he said.