The recent income tax raids on Dolo 650 maker, Micro Labs Limited, have once again brought to the fore gaps in the existing rules to enforce ethical medical conduct. Income tax authorities raided the premises of the Bengaluru-based company more than a month ago and claimed in a press release (which does not name the company) that the group has been wrongly claiming tax deduction for “distribution of freebies”, such as travel expenses, perquisites and gifts to doctors, pegged at ₹1,000 crore. The company has countered that these expenses are legitimate and incurred over the last five years and for its entire product portfolio. While the matter is under investigation, it throws up two aspects: first, irrespective of the merits of this case, there can be no denying that doctors are indeed plied with gifts and paid holidays (to attend seminars and symposiums) in the garb of these expenses being ‘educational’; and second, there isn’t enough clarity on how the laws, rules and codes in question can be invoked to regulate these practices. The second issue is truly serious; such ambiguities can either lead to overzealous or arbitrary tax snooping to curtail even legitimate promotional expenses, or malpractices not being checked at all. A total clampdown on promotion could stifle investment in research and product development. Hence, rules and their enforcement require a relook.
There are three rules, codes and laws in question here. The conduct of doctors is governed by the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002. Pharma companies are ‘governed’ by a Uniform Code of Pharmaceuticals Marketing Practices (UCPMP) which came into force in 2015. Finally, Section 37 of the Income Tax Act refers to deductible expenses which are not illegal or ‘offensive’ in nature, and is applied proactively to curb medical promotional expenditure. The Finance Bill 2022 explains “that the claim of any expense incurred in providing... benefits in violation of the provisions of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 shall be inadmissible” under Section 37. But this is not so straightforward.
The IMC Regulations debar doctors from accepting gifts and freebies, but allows more leeway to ‘medical associations’. The UCPMP for the industry is a voluntary code, with little enforceability. Attempts to read Section 37 into the MCI Regulations have been challenged in court – on whether its application can extend beyond doctors to regulating industry. Besides, there has always been a controversy over permissible expenses. A statutory code for industry that mandates some reasonable strictures, while emphasising on transparency in disclosures, could help in effective enforcement of Section 37 – which tries to regulate the industry by using a law meant for the medical profession. The market for medicines is different from that for consumer goods, as the buyer relies on information from the chemist and doctor and does not decide of his own accord. Hence, unethical promotional activity can harm consumer interest and distort competition. Linked to such practices is the production of irrational combination drugs of doubtful benefit to corner market share. India’s pharma sector could do with better post-production practices. A mandatory code for the pharma industry is urgently needed.