Hideyuki Aizawa, chairman of the Financial Reconstruction Commission, said Friday that he will call on the Finance Ministry to maintain the current capital gains tax system in order to prevent the ministry's proposed reforms from negatively affecting the domestic stock market.

"At a time like this, when stock prices are faltering, it is necessary to continue (the system) to prevent investors from fleeing the market," Aizawa told reporters following a Cabinet meeting.

Aizawa said there are many members of the ruling Liberal Democratic Party who support maintaining the current capital gains tax system, and said measures to extend it must be taken as early as possible.

International Trade and Industry Minister Takeo Hiranuma also said he is in favor of continuing the policy.

"An extension of the current system is desirable," Hiranuma said at a separate press conference.

Meanwhile, Finance Minister Kiichi Miyazawa told reporters that he will reserve judgment until the LDP's Tax System Research Commission discusses the issue.

The ministers' comments highlight the ongoing disagreement in the government about the Finance Ministry's plan to reform the capital gains tax system.

Under the capital gains tax format introduced in April 1989, investors are allowed to choose between two tax reporting systems on capital gains when they sell shares.

In an effort to make the taxation format simpler and fairer, the Finance Ministry plans to terminate the lower of the two tax rates in March.

However, there have been growing calls from securities industry officials and ruling party politicians for the current system to be maintained because termination would lead to an exodus of investors from the stock market.

The first of the current two tax reporting systems is called separate self-assessment taxation. Under this system, investors pay taxes only when they reap gains from stock sales. But they have to calculate and report the taxes themselves, and a 26 percent tax rate is applied.

Under the second system, called separate withholding taxation, investors pay a 1.05 percent withholding tax when they sell shares, regardless of gains.

The second system is popular among investors because it is simpler and the tax rate is lower.

The separate withholding tax was supposed to end in March 1999 as part of the government's tax-system reforms. However, it was extended for two years as a way of stimulating the economy.