Government targets pharma companies’ freebie culture

A new explanation proposed to be added to Section 37(1) of the Income Tax Act has sought to target the prevailing practice among pharma companies to get doctors and clinicians to promote their branded drugs and products in lieu of various considerations that range from free jaunts abroad and expensive gifts.

The Finance Bill, 2022, has come up with a range of amendments to existing rules and laws regarding taxes, government expenditure, financial policy, etc. In the memorandum explaining the provisions in the Bill, a new explanation proposed to be added to Section 37(1) of the IT Act says freebies/expenses by the pharma companies that are in violation of the Indian Medical Council ethics will not be eligible for deduction incurred by them while computing their business income.

“...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(1) for being prohibited by the law,” the government memorandum said.

‘Good move’

Dr Samiran Nundy, former head of the department of gastrointestinal surgery at the All India Institute of Medical Sciences (AIIMS) and co-author of the book “Healers or Predators: Healthcare Corruption in India”, said it was a step in the right direction to check the rampant corruption in the medical profession.

“This is a good move. However, it’s a very small step to clean up the bad practices in the healthcare system as there is a bigger elephant in the room – corruption among doctors,” said Nundy. He added there is a kickback system in medicine. The doctor who recommends the patient to another doctor gets a proportion of the other doctor’s fee.

According to Nundy, there is very little regulation or checks on malpractices in India. “In the last 10 years, only a few doctors were debarred from their medical practice unlike a country like England which debars many doctors every year on the ground of bad practices. Interestingly, 60 per cent of them are Indians, which may be because of racism or the habit of being corrupt before they moved there,” he said.

An industry insider said in a bid to promote their drugs, pharma companies would send doctors on foreign tours, give them expensive gifts including cars and free samples of drugs among others. In exchange for these favours, medical practitioners prescribe unnecessary drugs, supplements, multivitamins, long list of tests to patients.

Putting an end

Dr JA Jayalal, immediate past president of the Indian Medical Association, said the Medical Council of India’s code of ethics lays down that it is unethical for the doctors to take favours from pharmaceutical companies for the promotion of their drugs. “It is not possible to put a complete end to these practices by law or acts. The government should use the generic drug description model to abolish such practices. This supply model will also bring down the price of drugs significantly and make the medicines more affordable. All the branded names for drugs should be abolished,” Jayalal said. 

Industry leaders said this proposed amendment in the statute would impact the business of branded drug companies. “This is a good decision by the government which will help the industry in taking the right steps in cleaning up the present malpractices. It will also help generate more trust between doctors and the customers,” said Hitesh Windlass, Managing Director of Windlas Biotech.

Helping patients

In addition, Dr Alexander Thomas, President at the Association of Healthcare Providers India- AHPI (India) said, “The patient is central to the medical profession. It is hoped that this new provision will help curtail unethical practices and ultimately help the patient to access affordable and quality healthcare.”

However, tax experts are against this decision as they say the tax should always be levied on the actual income and disallowing such expenditure is not logical. The companies will spend on marketing and branding and this expenditure should be allowed. Experts believe that IT Act should not be used for banning unethical practices.

“IT Act should not be used for other purposes. As per the law, income tax is levied on real income. By disallowing such expenditures, we are running away from the actual income theory principle. They can still incur this expenditure and pay tax,” chartered accountant Ved Jain, who is also the past president of the Institute of Chartered Accountants of India, told BusinessLine.

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