New Delhi: A Parliamentary panel recently took cognisance of the practice of medical practitioners as well as healthcare organisations taking fee/payments in cash, noting that it was a high-risk area with potential for tax evasion.
The committee also slammed the practice of referrals as well as freebies in the medical profession, also pulling up the authorities for allowing deductions being made on account of such referrals. In particular the panel articulated
The fees charged by health professionals, private hospitals, nursing homes, medical clinics, medical colleges, diagnostic centres, pathological labs, medical supply stores etc. for their services are mostly received in cash, which is a high-risk area with potential for evasion of tax
The Public Accounts Committee, which gave its report relating to the health and allied sector also took serious cognition of the practice of advertisement by medical professionals and claiming them as expenses even though they go against the Medical Council of India Regulations
The Committee note that the referral fees paid to the doctors by private hospitals, nursing homes, diagnostics centres etc. for referring patients and payments made on account of advertisement expenses by the medical practitioners were allowed, although such expenditure has been held as disallowable and “unethical” as per CBDT’s directives and Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 read with Homoeopathic Practitioners – (Professional Conduct, Etiquette & Code of Ethics) Regulations respectively. The Committee , however, observe that despite the directives in this regard, such benefits are still being distributed, though in other forms.
The committee headed by Chairman Mallikarjun Kharge noted that for the sake of transparency such expenses have to be made taxable in the hands of the beneficiaries.
The Committee are of the view that in order to ensure transparency in the business activities, such expenses, being related to promotion of business, be allowed to be incurred from the profits after tax of the hospitals/pharmaceutical and allied industries and similarly, these may be made taxable in the hands of the beneficiaries.
Presenting its report before the Parliamentary panel, the committee cited the audit observations in which it found that in 19 instances in eight states, income-tax officers had in contravention of provisions allowed such expenses.
“In nine instances in Maharashtra, the Income Tax Department allowed advertisements and business promotion expenses totalling Rs 52.21 crore although the Medical Council deems advertising by doctors unethical. This resulted in an undercharge of tax of Rs 16.93 crore,” the committee added.
The panel then suggested that the Income Tax Department work in coordination with the Ministry of Health and Ministry of Statistics to take out the authentic data of healthcare professionals to judge the efficacy of the department to broaden the tax base in the health sector
The Committee are of the view that an estimation of the probable number of medical professionals, private hospitals, diagnostic labs, medical supply stores etc. in the country would be useful to gauge the efficacy of the measures taken by the Department to broaden the tax base in the health sector and, therefore, desire that the ITD may in coordination with the Ministry of Health and Family Welfare, Ministry of Statistics and Programme Implementation and State Governments collect authentic and accurate data and apprise the Committee thereof.
Numerous measures have been taken in the past by the government to put an end to freebie and referral practice. A circular issued by the Central Board of Direct Taxes (CBDT) in the year 2012, stated, “Expenses incurred by pharmaceutical companies on doctors were inadmissible as the Medical Council of India (MCI) had prohibited them under its ethics rules for doctors.”
Last year, an Income-Tax Tribunal called for an enabling “provision under the law” to prohibit pharmaceutical companies from providing gifts to doctors.