The ruling Liberal Democratic Party approved a set of proposals Tuesday to rev up the stock market, including one to exempt from taxation the capital gains made on shares bought in 2002 and held for two or more years, LDP officials said.

The measures were endorsed by the LDP's Research Commission on the Tax System.

The government has been formulating measures to boost individual participation in Japan's anemic stock markets at time when the Nikkei stock average is fighting to hold onto the psychologically important 10,000-point threshold.

One proposal the commission is considering will limit tax privileges to investors whose combined share purchases total 10 million yen or less per investor, they said.

The panel also endorsed a proposal to bring forward by three months to January 2003 the planned abolition of the withholding tax system, under which investors have been paying a 1.05 percent tax on the value of each stock transaction, they said.

As a result, all investors will be required to file a separate tax return for their stock transactions and pay a higher rate of income tax on capital gains.

At present, investors are allowed to choose between filing such a tax return and paying a 26 percent tax on combined annual capital gains, or paying a 1.05 percent withholding tax on the value of each stock deal whether they profited or not.

After the withholding tax option is scrapped, the tax rate on capital gains will be temporarily lowered to some 10 percent for three to four years under certain conditions.

One of the conditions is that the investors who buy the shares refrain from selling them for a year or more. The shares entitling their holders to the low tax-rate privilege should only be listed shares, the officials said.

If investors opt to sell listed shares within a year of buying them, their capital gains would be subject to a 20 percent tax. If they unload unlisted shares within a year, their capital gains would be subject to a 26 percent tax, they said.