The income-tax department would tax the amount pharmaceutical and allied health sector industries spend on freebies for medical practitioners and their professional associations. Those who accept the freebies will also be taxed.

The decision follows amendment to Medical Council of India regulations banning doctors and their associations from accepting freebies that include gifts, money, travel facility and hospitality extended by pharma companies and manufacturers of medical devices and nutraceuticals.

The August 1 circular of Central Board of Direct Taxes says that the department has come across such instances. A senior official from a pharma company admitted that several companies resort to such practices to advance their sales. He cited the instance of a company, a relatively new entrant, planning to take around 80 doctors from across the country for a full expense paid foreign trip for a `seminar'. "Some of them will be allowed to take their families depending on the doctor's standing," he said. "There have been cases where the doctors decided on the gifts."

Presently, income tax department grants tax exemption to money spent on business promotion. The department accepts companies' claim and allows tax deduction. An income tax official said, "Henceforth, the pharma companies cannot claim this benefit because the regulations prohibit it. And if we can prove that the company extended freebies to doctors, they are liable to pay tax on it. Moreover, those who received these freebies will also have to pay tax on the value of the gift or the money spent on them. For instance, if a doctor received a fridge as a gift, its market value will be treated as his or her income." The department has asked assessing officers take an appropriate action.

Chandra Mohan Gulati, a drug regulatory expert from Delhi, said this is a great first step. "Let it not be the last step. The government should now amend the Companies Act in such a manner that so that companies have to mention in their balance sheets expenditure incurred on doctors or medical associations but disallowed by the IT Act," he said. This will create awareness about the sums spent by companies on wooing the medical fraternity, said doctors. Dr Gulati, who has been called for several meetings on the subject by the government of India, said that the doctors should also be asked to mention details of their "gifts" from pharmaceutical firms.

In 2009, the MCI had set forth guidelines for doctors vis-a-vis pharmaceutical companies. "But that was just a half measure. MCI has no jurisdiction over pharmaceutical companies. Now, with the government of India taking this first step, things should improve," he added.

Ranga Iyer, who formerly headed Wyeth and the OPPI (Organization of Pharmaceutical Producers of India, said, "We should look at the IT Act changes in isolation. The need is for ethical marketing practices for pharmaceutical companies and we support any such move."

Dr Arun Bal of the ACASH (Association for Consumers' Action on Safety & Health), an NGO that works for patients' rights, said, "This follows previous unsuccessive attempts by the MCI and the government of India to bring about self-regulation among doctors and the industry." There is a need for more transparency from the industry, he added. "In the US, companies are asked to mention on their websites all details of the expenses made to doctors and associations."