Budget 2022 stops pharma companies from claiming tax cuts on freebies to doctors

The government has decided to stop pharma companies from claiming the cost of various freebies and largesse offered to doctors as a business deduction from April 1.

The latest tax amendments are part of the the Finance Bill, 2022 presented by Finance Minister Nirmala Sitharaman on Tuesday.

The Medical Council of India had in December 2009 notified a code of ethics that prohibits doctors from accepting gifts, travel assistance or hospitality for any purpose. It said that such practices could influence the doctors to prescribe inappropriate or unnecessary medications.

In August 2012, the Central Board of Direct Taxes declared that doctors who accept gifts from drug companies should declare the equivalent value as taxable business income while companies should reveal such expenditure on doctors in their annual accounts.

Since there has been no law prohibiting pharma companies from offering gifts to doctors, the practice continued, albeit it has gone somewhat underground.

The companies, say industry insiders, have been claiming deductions on these costs on doctors as legitimate business expenses while the tax officials have been denying these deductions.

This has led to various litigations as pharma companies have appealed against non-exemption from deductions.

The latest amendment by the government clarifies that in order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to insert another explanation to further clarify that the expression “expenditure incurred by an assessee  for any purpose which is an offence or which is prohibited by law”.

Activists batting for ethics in medicines, on the other hand, pointed that though this may be step in the right direction, a leap forward would have been possible if the finance minister had been more stringent. “There should have been an order to the industry to disclose names of all doctors and other health workers who received such payments, including quantity of the money received and make those names available to the National Medical Commission for action against them,” said Dr Amar Jesani, Editor of the Indian Journal of Medical Ethics.

S Srinivasan, Co-Convener of the All-India Drug Action Network, a body representing the rights of patients, said that the ambiguity so far has been there because the code of medical ethics while putting limits on doctor's taking gifts, does not prohibit the pharma company from giving gifts.

“Many of us have been demanding such a law to curb unethical marketing by pharma companies and while at present there is a voluntary code propagated by the government that exhorts the pharma companies not to give gifts to doctors, truth is that no pharma company wants a law,” he told Moneycontrol.

Dr Chandra M Gulhati, Editor of the Monthly Index of Medical Specialities, on the other hand, expressed concern that the industry may find a new, more innovative way to bribe the doctors.

“The inclusion of overseas laws in the amendment will hardly solve the problem. In non-regulated markets, Indian manufacturers operate through agents. It will be impossible to tame them. In regulated markets such as the US and Europe, the issue of bribery hardly arises,” he said. “Till good, old black money exists in India there will always be an opinion to use parallel economy to do what cannot be done overtly,” Dr Gulhati said.

“The legal position is clear that the claim of any expense incurred in providing various benefits in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible under section 37 of Act being an expense prohibited by the law,” the explanatory memorandum to the Finance Bill said.

S Srinivasan, Co-Convener of the All-India Drug Action Network, a body representing the rights of patients, said that the ambiguity so far has been there because the code of medical ethics while putting limits on doctor's taking gifts, does not prohibit the pharma company from giving gifts.

“Many of us have been demanding such a law to curb unethical marketing by pharma companies and while at present there is a Voluntary Code propagated by the government that exhorts the pharma companies not to give gifts to doctors, truth is that no pharma company wants a law,” he told Moneycontrol.