The IT department is going to tax the amount that pharma and other allied industries from the health sector spend on freebies reserved for medical practitioners as well as their professional associations. And those accepting such freebies are going to get taxed equally.
This decision follows an amendment to the existing regulations of the Medical Council of India (MCI), barring doctors and so their associations from accepting gifts (in cash or kind), travel facilities and hospitality often extended by pharmaceutical companies and medical devices/nutraceuticals manufacturers. The Central Board of Direct Taxes (CBDT) circular states the IT department has come across many such instances.
According to news reports published in leading newspapers, officials from pharma companies admit many of them undertake such practices to promote their products and boost sales. These involve granting doctors full expense paid trips abroad under the garb of a ‘seminar’ along with their families. All this depends on the doctor’s status, a TOI report quoted an industry insider as saying.
Presently, IT department grants exemption to amount spent on any business promotion. It accepts such claims from companies and allows tax deduction. An IT official was mentioned as saying, “Henceforth, they (pharma companies) cannot claim the benefit as the regulations now prohibit it. If it is proved that they actually have extended such freebies, they’re going to be taxed for the same.
“Moreover, those receiving such freebies will also pay tax on the respective amount of money spent. For example, if a doctor is given a refrigerator as a gift, its MRP will be considered his/her income.” The dept. has already told assessing officers to initiate appropriate actions.
The MCI had framed a set of guidelines in 2009 for medical practitioners vis-a-vis pharma companies. But many felt they were just half measures. MCI does not have any jurisdiction over the companies. With the Indian government taking this step, things will change, activists feel. One of them mentioned that they should not treat these changes in the IT Act in isolation. There is need for ethical and fair marketing practices for pharma companies.
Interestingly, healthcare providers in the West can now savor ‘modest meals’ that are paid for by pharma companies or makers of medical device under modified rules of a Massachusetts health board. An existing gift ban law prevents the former from buying (meals) for medical practitioners, except in hospitals or other formal health care settings. But the companies had argued that the ban was too narrow and restrictive. The Legislature then instructed regulators to ease it.