Slamming the practice of pharma companies offering freebies and gifts to doctors, government auditor CAG said that drug makers have claimed tax benefits on such expenses despite these being prohibited by law.
The Comptroller and Auditor General (CAG) said that it audited 2,868 assessment records of pharma companies and found 246 cases not in compliance with the laid-down provisions, involving total tax effect of Rs 1,348.44 crore.
“We noticed 36 cases involving tax effect of Rs 55.10 crore in seven states where the expenditure towards gifts/ freebies to medical professionals were allowed despite being prohibited by law…,” the CAG said in its report.
The report also mentioned that the Medical Council of India (MCI) has prohibited pharma companies from entertaining doctors by giving gifts, travel facilities, hospitality, cash or monetary grants.
In 2012, the Centre Board of Direct Taxes (CBDT) has also clarified that such expenses would not be allowable, it added.
The report also said that there were 171 cases related to mistakes in allowing business expenditure, inconsistency in assessments and irregularities related to international transactions involving tax loss of Rs 714.24 crore.
It also added that there were 22 cases involving tax effect of Rs 570.59 crore where on research and development (R&D) expenses were allowed without verifying the claims by the Department of Scientific & Industrial Research (DSIR).
The deduction of 200 per cent of the expenditure incurred on R&D activities is allowed provided it is approved by DSIR.
The pharmaceuticals industry has witnessed robust growth in last five-six years by taking its turnover from Rs 71,000 crore in 2007 to Rs 1,21,015 crore in 2013, making it a vital sector with huge potential for generating revenue for the government.