Pharma firms object to FBT on free samples

Sample sales account for 4% (Rs 920 cr) of industry sales.

The pharmaceutical industry is angered by the government bringing in free medical samples under the purview of the 30 per cent fringe benefit tax (FBT).

Fringe benefits mean any privilege, service, facility or amenity directly or indirectly provided by an employer to his employees. "What we have understood from the authorities about FBT is that it is a tax being collected on the expenses incurred by a company wherein an employer-employee relationship is established. If it is so, how do the physician samples comes under the same," said Dara Patel, director general of Indian Drug Manufacturers' Association (IDMA), a body representing nearly 600 small, medium and large drug companies.

The idea of FBT is to tax employers for fringe benefits extended to employees. FBT was introduced for the first time in India in the 2005-06 budget.

Free physician samples distributed by the pharmaceutical industry amounts to about 4 per cent (or Rs 920 crore) of its aggregate sales of Rs 23,000 crore.

The liability on the pharmaceutical companies on account of FBT on free samples will total Rs 276 crore.

"We are strongly objecting to the proposal of FBT on physician samples," said Patel.

"FBT should not be applicable to free samples given by pharma companies to doctors. FBT by definition is applicable only to benefits given by employers to employees," said D G Shah, secretary general, Indian Pharmaceutical Alliance (IPA), a body that represents top Indian pharma companies accounting for 65 per cent of the total pharmaceutical sales in the country.

IDMA will send a strongly worded memorandum to finance minister P Chidambaram on Monday demanding that free physician samples be taken out from the purview of FBT.

IPA will soon meet to fashion its response and make a formal representation to the government.