Buying medicine at a drugstore can now save you taxes.
On Jan. 1, the “self-medication tax deduction” system kicked off, allowing people who buy designated over-the-counter (OTC) drugs to apply for a tax refund. The move, intended to promote use of OTC drugs and discourage people from clogging up hospitals and clinics for minor ailments, will be in place for the next five years. Following are questions and answers about the new system:
How does it work?
To qualify for a refund, an applicant needs to spend more than ¥12,000 per year on designated OTC drugs. Purchases by the applicant’s family members can be included. The amount exceeding ¥12,000 — up to the ceiling of ¥88,000 — can be deducted from the applicant’s taxable income.
The government has designated some 1,600 OTC products containing any of 83 designated ingredients as eligible. Tax refunds will be made only to those who actually apply for them.
Japan already has a system for reimbursing a certain amount of taxes paid by people who spend more than ¥100,000 per year on medical bills, including hospital fees and prescriptions, dental care and OTC drugs. For that, the amount of medical expenses exceeding ¥100,000, including those of family members, can be deducted.
Taxpayers must choose between the two — the older medical bill deduction or the self-medication tax refund; they can’t use both at the same time.
Is there anything else one needs to prepare when filing for a refund?
Yes. The program requires that applicants are engaged in efforts to maintain or boost their health or to avoid becoming sick. Applicants need to show proof that they have participated in one of the following:
A health checkup organized by a health insurance union or a municipal government.
A company health checkup.
A vaccine shot (routine shot or flu shot).
A screening for metabolic syndrome.
A cancer screening organized by a municipal government.
The applicants can turn in a receipt for a vaccination fee or a copy of their health checkup report. The part showing the actual result of the checkup can be blacked out. Family members of applicants are not required to hand in such documents.
Why is the government introducing this tax refund?
The health ministry has been calling for creation of such tax breaks for years, saying it needs to give people incentives to use more OTC products as opposed to prescription drugs. The ministry claims self-medication, or using drugs to treat self-diagnosed disorders or symptoms, will encourage people to be more proactive about managing their health.
The government’s less advertised, but potentially huge, motive for introducing the tax incentive is the need to steer people away from seeking care at hospitals and clinics — and thereby rein in soaring medical costs. Japan’s medical expenditures totaled a record ¥41.5 trillion in fiscal 2015 — up from ¥36.6 trillion in fiscal 2010 and ¥32.4 trillion in fiscal 2005 — and they are expected to grow further as the population grays.
It’s no secret that Japan’s universal and relatively cheap health care has led some people to rush to doctors every time they get a cold or fever, a trend often criticized as konbini jushin (visiting doctors as if going to convenience stores) and turning not a few neighborhood clinics into chanomi saron (tea salons), a socializing venue for the elderly.
By nudging more people to become comfortable treating minor symptoms by themselves, the government wants to free the bloated health care system from abuse and overuse.
The health ministry has not conducted simulations on how much the new scheme will contribute to curbing medical costs, a ministry official said. The Finance Ministry estimates that the program will result in a loss of ¥3 billion in income tax revenue per year.
How much money will be saved?
It depends on the amount people spend on the drugs and their income.
For example, if you buy designated OTC drugs worth ¥50,000 per year, ¥38,000 will be deducted from your annual taxable income. If your taxable income is ¥4 million, you can deduct 20 percent of ¥38,000 — or ¥7,600 — in income taxes and 10 percent of ¥38,000 — or ¥3,800 — in residential taxes. That translates into total savings of ¥11,400 per year. If you have the same level of income but pay just ¥20,000 for OTC drugs, you can save ¥2,400.
Which OTC drugs are covered?
The full list of roughly 1,600 products covered by the refund, as of Feb. 14, can be found in Japanese at jtim.es/W3ZW309nMOi .
They range from cold and pain-relief medicine to eye drops, acne creams and rhinitis capsules. Cooling/heating pads and medications for gastrointestinal problems, diarrhea and athlete’s foot are also included.
Some, but not all, products will bear a small logo that says they are included in the scheme. When in doubt, ask the pharmacist if the drug you are buying is covered. You need to keep the receipts and submit them when you file tax returns between mid-February and mid-March (for this year’s receipts you will file tax returns next year).
What about drugs purchased over the internet?
You cannot print out a receipt of the internet transaction and submit it as proof. You must request the online seller to issue an official receipt and submit the original.
For more information (in Japanese), visit jtim.es/EzCs309nMPz .