Dodging tax

The government already knows that it faces a significant challenge: how to tax undeclared incomes. Increased monitoring of bank accounts was always likely to move more and more untaxed transactions outside formal channels. One example comes from the world of private medical practice in the country. According to reports, the already dodgy practice of doctors receiving payments from pharmaceutical manufacturers for recommending their medicines has now moved to cash channels. Instead of the old practice of receiving such payments in their bank accounts, doctors themselves have asked pharma manufacturers to make these often-monthly payments in cash. There is little doubt that this creates another major challenge for tax authorities in their ongoing attempts to bring the private medical community into the taxed economy. The trouble with these incomes is that not only are they kept outside the taxed sectors, they are also not monitored by the health department. This is not merely a matter of taxation, this is a matter of ethical medical practice, which benefits patients, not the pockets of high-earning doctors.

There are a dozen ways of going after the pharma industry and the doctors who benefit from such dodgy practices. The problem is that the mechanism chosen by the current government is the one most likely to be designed to fail. Instead of forcing these payments to move outside the banking sector, the FBR could have used banking data to tabulate the real incomes of doctors through such payments and the real incomes of the pharma industry. Instead, the public crackdown has already allowed such payments to be moved to the cash economy. Millions of rupees are now flowing in cash to encourage doctors to prescribe brand-name drugs and devices to benefit pharma manufacturers.

Pharma manufacturers are unlikely to willingly share the data of the list of doctors they provide payments to. However, it is well within the rights of tax authorities to obtain these lists and bring this malpractice into check. Not only would checking their practice result in patients getting better care, it would also bring the price of medicines down, as the cost of payment to doctors is eventually transferred to patients through more expensive medicines. The issue shows some of the big challenges that tax authorities continue to face in the ongoing documentation and taxation campaign. Without taking urgent action now, the government may not be able to check this practice.