The tax panel of the ruling Liberal Democratic Party agreed Wednesday to introduce a tax break for firms using the so-called treasury stock system when the ban on such securities is lifted.

Liberalizing treasury stocks, shares that companies buy back and keep in reserve, was approved by the government in its emergency economic package compiled April 6.

In response, the LDP's Tax System Research Council began three days of intensive discussion Wednesday morning to work out tax incentives for firms to use such stocks.

The panel also plans to seek various tax incentives for individual stock investors.

As for treasury stocks, the panel intends to eliminate taxes on "deemed dividends," which are currently imposed on shareholders when they sell shares back to the company.

Instead, they would only be required to pay capital gains tax.

With regard to tax revisions relating to the proposed establishment of an entity to buy cross-held shares from banks, the panel decided to consider the issue after details of the relevant legislation are worked out.

Other tax breaks being considered include eliminating taxes on long-term capital gains of up to 2 million yen a year from stock sale and lowering the current 26 percent tax rate on equity capital gains reported in individual income tax returns to 20 percent.

The panel is also considering making earnings from investment trusts eligible for tax-free status under the "maruyu" tax-exemption system for the elderly.