Japan to exempt extra charges on OTC-like drugs from tax

The Japanese health ministry intends to exempt additional charges for prescription drugs that are chemically and pharmacologically similar to over-the-counter medicines from consumption tax, according to sources cited on Monday. In its proposal for tax system reform in the fiscal year 2027, the ministry is requesting that these extra fees be permanently exempt from consumption tax.

The government aims to implement the additional fees for drugs equivalent to over-the-counter medications in March of the following year. Approximately 1,000 drugs containing 77 different ingredients will be subject to these additional charges. Under the new system, patients will be required to pay 25% of the total drug fee as a special fee, while the remaining balance will be covered by public health insurance, with patients responsible for paying between 10% and 30% out of pocket.

Patients are not subject to consumption taxes on treatments covered by public health insurance. However, if they opt for services not covered by the insurance, such as private hospital rooms and prescriptions of brand-name drugs instead of more affordable generic alternatives, they will be charged a 10% consumption tax on the special fees.

Nonetheless, the new system will automatically impose the additional charges on OTC-equivalent drugs, even though patients have no control over the prescription of specific medications. Patient associations have expressed concerns about the additional financial burden imposed by the consumption tax. The health ministry is confident that the additional fees will not be subject to consumption tax, provided that tax authorities do not decide to impose the tax.

A senior health ministry official stated, "We will confirm with tax authorities that taxes will not apply, rather than launching the new system without clarifying the tax treatment of the system."