Pharma promotions tax exempt: Tribunal

A recent decision of the Income Tax Appellate Tribunal’s Pune bench allowing pharmaceutical companies to account for their spending on doctors as a deductible expenditure has sparked off a fresh debate on ethics.

Since the companies are out of the purview of the Medical Council of India (MCI), money spent on promotions, which in some cases could be gifts, travel, hospitality and so on for doctors, besides medical conferences and samples, can be claimed as deductible expenditure. Doctors accepting such promotions may be violating the code of ethics of the MCI.

The tribunal’s order came in a case involving Emcure Pharmaceuticals Ltd, which filed returns in which expenses of ₹2.07 crore were claimed as ‘advertisement sales promotions’. Of this, about ₹50 lakh was for ‘print and promotion’ and the remaining ₹1.57 crore was for ‘sales promotions’. The pharma company’s claim was disallowed by the IT department on the ground that it violated the MCI code of ethics. A Central Board of Direct Taxes (CBDT) circular also disallows deductions that violate MCI regulations. However, the IT Appellate Tribunal reversed the decision by the assessing officer and ruled in favour of the company. Citing observations made in other cases, the bench noted that pharma companies organised seminars and discussions to upgrade the knowledge of doctors, and such activities were undertaken to make doctors aware about products. The order noted that only when the companies made doctors or medical practitioners aware of such products and medicines, could they be “launched successfully”.

“This kind of expenditure is definitely in the nature of sales and business promotion, which has to be allowed,” the order said.

Pharma needs ethics

Health activist Dr. Abhijit More of Jan Swasthya Abhiyan said technically, the tribunal was correct. “The MCI code may not govern pharma companies. But there are ethical problems as it directly affects patients”, he said. “The companies should also have a code of ethics”, said Dr. More. Freebies and favours taken by doctors pushed up the cost of healthcare. “Costly drugs are prescribed although cheaper substitutes may be available,” he added.

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