Budget 2022 makes expensive drug companies giveaways to doctors

In August 2012, the Central Board of Direct Taxes had advanced the dictate of the Indian Medical Council (IMC) prohibiting doctors and their professional associations from taking any gift, travel facility, hospitality, money or monetary subsidy from the pharmaceutical and paramedical sector. . Industries. The CBDT disallowed the expenses on these counts when calculating the taxable income of these companies.

The CBDT’s decision was wise because despite IMC’s exemplary and moralistic stance, the practice of accepting such hospitality offered by pharmaceutical companies has continued unabated. So it hit where it hurt – increasing the tax burden on these pharmaceutical companies, which resulted in disallowance of spending.

Despite this CBDT circular and the general prohibition contained in Section 37(1) of the Income Tax Act disallowing expenditures prohibited by law, pharmaceutical companies persisted in this practice and in fact regularly made appeal of this refusal. And the courts and tribunals have been split in two over whether or not those expenses have been met. Now, the Finance Bill 2022 puts an end to this dissonance and puts an end to the doctors’ party and the frenzy of the pharmaceutical sector.

It is common knowledge that scheduled drugs cannot be advertised in India. This ban fortunately insulates viewers from celebrity bombing and overpowering to that extent. The pharmaceutical companies have found a way out. He took the old adage that a happy customer is the best brand ambassador for a product or service and modified it to his advantage – a popular doctor is his best brand ambassador. Thus, it is common for these companies to give free samples to doctors who are content to pass them on to their patients, taking care, of course, to add the price of these drugs to the consultation fees.

But free samples are not good for the financial health of these companies. Thus, they saw merit in infiltrating the hearts of their doctors by giving them expensive gifts and taking them to exotic destinations both in India and abroad. Physicians thus pampered and flushed with excitement from reciprocal excursions by prescribing brand name drugs from these companies to the exclusion of generic drugs.

Generic drugs are much cheaper than brand name drugs, but just as effective. Doctors should write generic names along with brand names of drugs in prescriptions as per Medical Council of India (MCI) instructions, or they should explain the reason why they are not doing so, noted Ananth Kumar, Minister of Chemicals and Fertilizers in May 2017. A brand name is given by the company making the salt, while the generic name is the name of the salt itself, period. In fairness, a patient should be able to buy the cheaper version of the brand name drug. In addition, there is also the widespread practice of overmedication, i.e. the prescription of powerful and expensive brand name antibiotics, whether justified or not. Such a free prescription negatively affects the patient’s immune system.
The 2022 finance bill has become aware of the inefficiency of the self-regulation practiced by the noble professions as well as the CBDT circulars. He therefore chose to read the riot act to the pharmaceutical sector. But the debatable question is whether this will dampen the spirit of the industry and the medical profession. Just as doctors defy ethical dictates, pharmaceutical companies can defy income tax law with clever accounting, camouflaging unpleasant expenses with loftier nomenclature. Or maybe they don’t mind being denied the deduction and therefore fully covering the expenses without being tax subsidized.

But then the income tax law can only impose a tax penalty. If the industry continues to remain incorrigible and defiant, it is up to Parliament to consider whether these extravagant and corrupt acts by pharmaceutical companies should be criminalized.

— S. Murlidharan is a CA by training and writes on economic issues, tax and trade laws. The opinions expressed in the article are his own.

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(Edited by : Ajay Vaishnav)

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