Prime Minister Mahathir Mohamad, presenting his last budget before retiring next month after 22 years in power, said additional income tax incentives would be offered to foreign firms setting up operational headquarters in Malaysia.

To boost local industries, he said the threshold of taxable income for small- and medium-sized industries would be raised five-fold to 500,000 ringgit (132,000 dollars) in a move that would free up 322 million ringgit for investment.

Local firms investing in machinery and equipment would get pioneer status with a 70 per cent tax exemption on increased income over five years, he said.

Ahead of the liberalisation of the auto market in 2005 under a regional free trade agreement, Mahathir also announced new excise duties on imported cars from next year to offset losses in import duties.

To support the transition to a knowledge-based economy, he said state-owned Telekom Malaysia would cut Internet access charges by 30-50 per cent.

The budget also involved cuts in the export duty on food, agriculture, building materials and minerals, with a 10 per cent import duty on health supplements abolished.

Import and excise duties on liquor, tobacco and cigar were raised by between 10 and 20 per cent.