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    View: Budget 2022 makes it costly for drug firms giving freebies to doctors

    View: Budget 2022 makes it costly for drug firms giving freebies to doctors

    View: Budget 2022 makes it costly for drug firms giving freebies to doctors
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    By S Murlidharan   IST (Published)


    Finance bill 2022 reads the riot act to drug companies by disallowing expenses designed to cynically influence doctors' prescription and corrupt their morals

    Back in August 2012, the Central Bureau of Direct Taxes had taken forward the Indian Medical Council (IMC) diktat prohibiting medical practitioners and their professional associations from taking any gift, travel facility, hospitality, cash or monetary grant from the pharmaceutical and allied health sector industries. The CBDT disallowed expenditure on these counts while computing the taxable income of such companies.
    The CBDT move was wise because despite the exemplary and moralistic stance of the IMC, the practice of accepting such hospitality provided by drug firms went on unabated. It therefore hit where it hurt—increase the tax liability of these drug firms which is what disallowance of expenses resulted in.
    Despite this CBDT circular and the general prohibition contained in section 37(1) of the Income tax Act disallowing expenses prohibited by law, pharmaceutical companies persisted with the practice and in fact regularly appealed against such disallowance. And courts and tribunals have been divided right down the middle on whether such expenses did or didn’t pass muster. Now the Finance Bill 2022 ends this dissonance and ends the party for doctors and the binge for the pharmaceutical sector.
    It is common knowledge that scheduled drugs cannot be advertised in India. This prohibition mercifully insulates to that extent the television viewers from celebrity bombardment and overkill. Pharmaceutical companies found a way out. It took a cue from the old saying that a satisfied customer is the best brand ambassador for a product or service and tweaked it to its advantage—a popular physician is its best brand ambassador. So, it is common for these companies to give free samples to the doctors who simply palmed them off to their patients taking care of course to add the price of such drugs to the consultation fee.
    But free samples are not good for the financial health of these companies. So, they saw merit in worming into the hearts of their doctors by giving them expensive gifts and taking them to exotic destinations both within India and abroad. Doctors thus pampered and flush with excitement from the excursions reciprocated by prescribing the branded drugs of these companies to the exclusion of generic drugs.
    Generic drugs are mighty less expensive than the branded ones but equally efficacious. The doctors should be writing generic names with brand names of medicines in prescriptions as per the directions of Medical Council of India (MCI), or they should explain the reason for not doing so, said Ananth Kumar, Minister of Chemicals and Fertilizers in May 2017. A brand name is given by the company manufacturing the salt, while the generic name is the name of the salt itself, period. A patient in all fairness should be able to buy the cheaper version of the branded drug. In addition, there is also the widespread practice of overmedication—prescribing powerful and expensive branded antibiotics whether warranted or not. Such wanton prescription affects the immune system of the patient adversely.
    Finance Bill 2022 has realised the ineffectiveness of self-regulation practiced by noble professions as well as the CBDT circulars. It has therefore chosen to read the riot act to the pharmaceutical sector. But the moot question is will this dampen the spirits of the sector and the medical profession. Just as doctors defy ethical diktats, drug firms can defy the income tax law through clever accounting—camouflaging the disagreeable expenses with a nobler nomenclature. Or they may not mind being denied the deduction and thus taking the expenditure in their strides fully without being tax subsidised.
    But then income tax act can only impose a fiscal penalty. If the sector continues to remain incorrigible and defiant, it is for the Parliament to consider whether such extravagant and corrupting acts of the pharmaceutical companies should be criminalised.
    — S. Murlidharan is a CA by qualification and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own.
    Read his other columns here
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