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Tax deductions for sales promotions, gifts of pharma companies on Madras HC radar

The court has now asked the central government to submit details of the number of pharmaceutical companies existing in India since 2015.

Written by Prabha Raghavan | New Delhi | Updated: February 22, 2020 6:17:35 am
Tax deductions for sales promotions, gifts of pharma companies on Madras HC radar The court in January had suo moto decided to look into issues like bribing of doctors and overpricing of drugs by pharmaceutical companies.

Pharmaceutical companies in India claiming tax deductions for “sales promotion” as well as “gifts” are on the radar of the Madras High Court for potential unethical medical practices.

The court in January had suo moto decided to look into issues like bribing of doctors and overpricing of drugs by pharmaceutical companies. According to the details furnished to the court so far, “it is evident” that over 8,000 companies had claimed income tax deductions under the categories of “sales promotion expenses” and “Gift”. “Totally, 8,667 companies have claimed the said deduction. This court is aware that thousands of pharmaceutical companies are existing in India,” stated a bench of Justices N Kirubakaran and P Velmurugan in their order on February 17.

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Code for ethical practices voluntary

While the code for ethical pharma marketing practices is currently voluntary in India, the judiciary’s scrutiny might help tighten the noose around those getting tax exemptions despite flouting norms by providing bribes to doctors for pushing their products.

The court has now asked the central government to submit details of the number of pharmaceutical companies existing in India since 2015. It has also asked the Income Tax department to provide details of the number of companies that have claimed deduction towards promotional expenses from that year onwards.

The court’s observations in January were brought on during a case involving a tax dispute with Chennai headquartered pharma company Fourrts (India) Labs Pvt Ltd, which had claimed deductions of Rs 5.46 crore as licences and taxes and Rs 42.82 lakh towards “sales promotion expenses”, including payments to doctors to promote the company’s medicine brands. In the course of the proceedings, the court had decided it was imperative to suo moto consider “the larger issues of bribing of doctors and overpricing of drugs by pharmaceutical companies, as they directly affect citizens”, violating their rights under the Constitution of India.

“From the facts mentioned…it is clear that even though it is prohibited under law, the pharmaceutical companies are still promoting their drugs by providing gifts, travel facilities, hospitality, cash or monetary grant to the doctors to promote their brand medicines. It is also proved that drugs are overpriced illegally by the companies. It is shocking and surprising to note that the company (Fourrts) claimed deduction from Income Tax for the amount spent towards sale promotion expenses as well as for licences & Taxes,” stated the court in its last order in January.

The case assumes significance as it comes at a time when the Department of Pharmaceuticals has been directing pharmaceutical companies to strictly adhere to its Uniform Code for Pharmaceutical Marketing Practices. The code is currently voluntary, but DoP Secretary in December is learnt to have held a meeting with pharma industry representatives, telling them to implement the code otherwise it may be made a statutory provision. A report by NGO Support for Advocacy and Training to Health last year had suggested that pharma companies had given doctors expensive perks like foreign trips and, in some instances, even women, for prescribing their brands.

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