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The ruling coalition on Friday finalized proposals for revising securities taxes, which feature incentives for individual investors to boost flagging markets.

The coalition, however, postponed tax breaks related to land transactions and plans to establish a controversial entity that would buy banks’ cross-held shares so a new administration that will take office after a party election next week can work out the details.

The latest tax breaks would reduce the central government’s revenue by 90 billion yen, said Sohei Miyashita, a senior member of the LDP’s Tax System Research Council.

During Friday’s discussion, the ruling parties — the Liberal Democratic Party, New Komeito and the New Conservative Party — agreed to call for eliminating taxes on capital gains of up to 1 million yen from the sale of stocks held for more than a year.

The change would take effect in October, after related laws are revised during the current Diet session, Miyashita said.

The coalition also agreed on making income from all investment trusts eligible for tax-free status under the “maruyu” tax-exemption system for those aged 65 and over.

The system currently applies to investment trusts in which equities account for less than 70 percent of their total value — a limit that would be eliminated.

In addition, the coalition agreed to introduce a tax break for so-called treasury stocks, a company’s own shares the firm buys back and keeps in reserve, when the ban on such securities is lifted. Taxes would be eliminated on “deemed dividends,” which are imposed on shareholders when they sell shares back to the company. Instead, they would only be required to pay capital gains taxes.

The three parties also agreed to introduce tax incentives in line with the launch of exchange-traded funds, or investment trusts that can be traded like shares.

Meanwhile, the coalition will “strive to reach an early conclusion” on lowering the current 26 percent tax on stock capital gains reported in individual tax returns and enabling stock investors to carry over losses.

Until the final stage, New Komeito demanded that a clear pledge to quickly introduce these steps be stated in the final proposals.

Currently, capital gains taxes on stock trades is paid either as a 1.05 percent withholding tax on individual sales, both for profit and loss, or as a 26 percent tax on gains for the year.

As the withholding tax option of the two-tier tax has just been extended to April 2003, the LDP was reluctant to promise any further revisions, offering a compromise instead.

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