The Organisation of Pharmaceutical Producers of India (OPPI) has urged the Union finance ministry to keep in abeyance the central board of direct taxes (CBDT)'s circular no. 5/2012 under which the ministry had brought under the purview of income tax any expenditure incurred by way of provision of freebies to doctors.
There is widespread ambiguity amongst the pharmaceutical industry and laying out such generic guidance would lead to unnecessary confusion and significant hardship to the taxpayers as it shall provide discretionary powers to the Assessing Officer (AO) thereby opening floodgates of unnecessary and unwarranted litigations, OPPI in its pre-budget memorandum to the finance ministry said.
Any expenditure incurred by way of provision of freebies to doctors are inadmissible under Section 37(1) of the Income-tax Act, 1961 (‘the Act’) being an expenditure prohibited by law as per MCI Regulations. The circular is unclear in its current form on the aspects of scope of expenses applicability and manner of administration, OPPI further said.
In no circumstance the AO should be left with the discretion to determine which expenses are in violation of the appropriate applicable code/law. To this effect, the disallowance should made only where an adjudication has been done by an appropriate authority having jurisdiction or by AO where it is evidently clear from the facts.
As an another interim measure, the CBDT may consider to constitute a panel with adequate representation from the Revenue, Department of Pharmaceuticals and Trade to define which expenses would be considered as ‘ethical’/‘unethical’ (eg. samples, conferences, etc.) and guidelines for implementation, the OPPI in its letter suggested.
Notwithstanding the above, the provisions of the Circular should be prospective in nature and not effective from the date of the Regulations (i.e. 10 December 2009). A specific clause may be provided whereby companies are allowed a deduction of sales promotion expenses on the basis of specified documents such as CA certificate etc. in absence of third party verification, in a hassle free manner, it said.
There is already a mechanism in Section 37(1) of the Act to disallow expenses which are personal or illegal in nature. The Circular should be linked to violations of Uniform Code of Pharmaceutical Marketing Practices for Indian Pharmaceutical Industry (UCPMP) as and when it becomes mandatory. Till such time, the circular should be kept in abeyance, the OPPI demanded.