FBR proposed to discourageunethical practices by pharma firms

KARACHI: Tax managers have suggested the Federal Board of Revenue (FBR) to make amendments in the tax laws for pharmaceutical companies to discourage unethical practices.
The FBR has received budget proposals for the fiscal year 2015/16 from the Large Taxpayers Unit (LTU) Karachi, which recommended disallowance of the expenses of pharmaceutical companies incurred on doctors or other health sector for promotion of their products.
The sources said the rationale of the proposals was to prohibit expenses incurred by the pharmaceutical companies by way of gifts, foreign travel and other giveaways to doctors against professional ethics or public morality and promote healthy and lawful competition.
In this regard, the LTU Karachi proposed insertion of an explanation to Section 20 of the Income Tax Ordinance, 2001, which said: “For removal of doubt it is declared that any deduction claimed on account of any expenditure incurred by a person for any purpose, which is an offence under any law for the time being in force in Pakistan, or in the country in which the expenditure has been incurred, or which is prohibited by the law, or goes against the public morality shall not be deemed to have been incurred for the purpose of business, and no deduction shall be allowed in respect of such expenditure.”
Sources said Section 20 of the ordinance has allowed deduction of expenses under the head of income from business for the purpose of business promotion.
The sources said this facility had been grossly misused by the pharmaceutical companies, as they claimed expenses incurred on promotion of their products on doctors. By doing this, they reduce their income or profit to pay less amount as income tax, the sources said.
In another proposal, the LTU Karachi recommended restricting the concessionary regime on advertisement, publicity, entertainment, training or other expenditure.
The sources said the unit proposed an insertion of new clause to Section 21 to prevent the misuse, which is rampant in some sectors of the economy.
An Inland Revenue officer said several organisations in the name of recreational activities claimed huge amount as expenses to reduce their tax liability.
The official also said in many cases the organisations misuse the facility by holding business activities under recreational activities.