Now, pharma cos freebies to docs taxable for both

Written by Soma Das | New Delhi | Updated: Aug 9 2012, 09:23am hrs
Doling out freebies to doctors just turned exorbitant for pharma companies as the government has decided to label such exchange taxable, both for the drug firms and the medicos. The Central Board of Direct Taxes (CBDT) has clarified that the tax law doesnt not allow pharma firms to show spending incurred on gifts to doctors (already prohibited for doctors to accept under the Medical Council of India regulations) as deductible expense under the Income Tax Act.

This implies such expenses would now have to be booked under profits by pharma companies and, hence, would be rendered taxable.

CBDT has also made it clear that doctors who take such favours would have to show them as their business income or income from other sources and would have to pay tax on it. This landmark move on part of the finance ministry is clearly expected to deter such disturbing practice between doctors and pharma firms. This, however, still doesnt directly correct the anomaly of a half-law that governs the doctors-drug-firm relations as reported by FE on Sunday.

While, since 2009, doctors have been barred from accepting gifts and freebies from drug-marketing companies under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, there is no corresponding law to book pharma companies for offering bribes. This can be achieved by amending the Drugs and Cosmetics Act, to introduce a parallel provision that mirrors the MCI regulation.

However, pharma companies maintain that the existing MCI regulations are not practical, particularly in relation to continuing medical education (CME) programmes. We have no objection to this circular per se, but the CME programmes, which are absolutely essential for communicating therapy advancements to doctors would be the first casualty as a result of such move. If doctors are not aware of the paradigm shift in therapies, how can they make informed choices while prescribing asks DG Shah, secretary general, Indian pharma alliance, an industry body of top domestic pharma firms.

According to MCI rules, A medical practitioner shall not accept any travel facility inside the country or outside, including rail, air, ship, cruise tickets, paid vacations etc from any pharmaceutical or allied healthcare industry or their representatives for self and family members for vacation or for attending conferences, seminars, workshops, CME programme as a delegate.

Most CME programmes get conducted through doctors associations, branches of which are spread across the country. Now, the pharma companies as well as the medical association or the individual doctors would have to shell out taxes for sponsoring or attending such conferences respectively. However, what may become the most sticky point in the move is an already much dreaded concept of implementation from retrospective effect.

Please note that the circular is actually in form of a clarification in context of dealings between pharma firms and doctors. This implies all such splurges on freebies that pharma companies made post 2009 when the MCI guidelines were enforced can now be taxed. Also in case of doctors, IT returns of doctors can be reopened for last eight years if specific complaints are received by Director General of Investigations for past financial years, " said Chandra Mohan Gulhati, an eminent drug regulatory expert. This issue came under spotlight once Prime Minister's Office directed department of pharma to prepare a code of ethics for pharma companies. The PMO's action was partially prompted by member of Parliament Jyoti Mirdha's letter alleging that a reputed pharma firm sponsored a eight day Scotland trip for 15 doctors from MP along with their families, a charge the company has denied.

While the department of pharma is currently scripting a code of ethics for drug firms, the chances of this becoming mandatory in neat future is remote in current circumstances, considering it doesn't have the relevant statutory power.