NEW DELHI :
More than 8,600 Indian pharmaceutical companies have claimed income tax deduction on the freebies they give to doctors as “sales promotion expenses" and “gifts" in their tax return for the current assessment year, according to details furnished to the Madras High Court by the tax department.
The Madras High Court had in January taken suo motu cognizance of issues like pharmaceutical firms bribing doctors and overpricing drugs.
“Totally, 8,667 companies have claimed the said deduction. This court is aware that thousands of pharmaceutical companies are existing in India," a bench of Justices N. Kirubakaran and P. Velmurugan said in their order on 17 February.
The high court has asked the Centre to provide details of the number of pharmaceutical companies existing in India since 2015, and also asked the Income Tax department to reveal the number of companies that have claimed deduction towards promotional expenses over the last five years.
Under the law, pharmaceutical companies are not allowed to promote their drugs with doctors by providing gifts, travel facilities, hospitality, cash or monetary grant. However, the practice of bribing doctors is allegedly rampant.
“It is shocking and surprising to note that the company claimed deduction from Income Tax for the amount spent towards sale promotion expenses as well as for licences and taxes," the court said.
The given irregularities came into light in a tax dispute case between the I-T department and a pharma company. The case was related to a pharmaceutical company’s claims that the interest paid on allegedly overcharged amounts returned as per an order of the National Pharmaceutical Pricing Authority (NPPA) was not penal in nature.
The Income Tax official who assessed the company’s tax return for the assessment year 2012-13 disputed this and disallowed deductions claimed on this account. The company had also claimed ₹deduction of ₹42.8 lakh towards ‘sales promotion expenses.’
The High Court admitted the case to look into issues including the correctness of a subsequent order of the Income Tax Appellate Tribunal that favoured the company.
Pharmaceutical companies have had many disputes with the Income Tax department in the past, including the weighted deduction that they claim for their research and development expenses with officials questioning what all could be shown as research spending.
A report by a non-governmental organization Support for Advocacy and Training to Health Initiatives (SATHI), had in August, alleged that pharmaceutical companies bribe doctors with various gifts, ranging from pens and pen stand to Apple phones costing ₹80,000 and X-ray equipment for the clinic.
“Some doctors who give huge business, demand women for entertainment and these demands are met," the report had said.
SATHI’s report sparked considerable outrage, with Prime Minister Narendra Modi asking pharmaceutical companies in a meeting to not give gifts to doctors.
The Department of Pharmaceuticals, however, has not taken any serious steps, apart from asking companies and their associations to adhere to the Uniform Code for Pharmaceutical Marketing Practices, which are voluntary guidelines for marketing drugs.