Colombia has one of the more robust gambling regulatory frameworks in LatAm, after becoming the first country in the region to regulate online gaming in 2016 through its Egaming Act.
The market has grown significantly since then, attracting international operators such as RushBet and Betano. In 2023 H2 Gambling Capital forecast the nation’s gross gambling revenue (GGR) would surpass $2 billion by 2027.
However, a huge disruption to the otherwise well-operated market appeared in September last year when the Colombia government announced it would assess proposals to introduce a 19% VAT on online gambling.
Government passes gambling VAT via “exceptional measure”
Although the initial attempt was quashed in December, in January this year the Colombian government implemented the tax on a temporary basis, with the 19% rate to run for an initial 90-day period.
The government was able to do this thanks to an exceptional measure in Article 213 of Colombia’s Political Constitution.
Speaking to iGB Carrasco, a partner at Bogota law firm Asensi Abogados, says this measure is typically used during severe public order disturbances that “threaten institutional stability, state security or citizen coexistence” and require solutions beyond the government’s normal powers.
Yet, despite the so-called state of emergency, Carrasco tells iGB it is still unclear whether the new VAT on gambling Colombia relates to player deposits or turnover.
After meeting with the Colombian finance minister Diego Guevara, Carrasco hopes the government now understands that it makes more sense to tax deposits than turnover.
Carrasco says Article 420 of Colombia’s tax code should prevent the government from taxing turnover as it states: “The taxable base of the sales tax on games of chance and luck will be constituted by the value of the bet.”
“With what is written in the law, [the tax] should be on deposits, because there are a lot of provisions and regulations that [suggest] that VAT on gambling should be over deposits,” Carrasco explains.
Will the emergency measure be extended?
However additional uncertainty lies in the “temporary” nature of the tax’s implementation, as according to Carrasco, the state of emergency’s initial 90-day timespan can be extended twice for a total of 180 additional days.
However, he says the second extension will require approval from the senate, a process Carrasco doesn’t expect to be very “smooth”.
The tax is under permanent review by the congress, but Carrasco has doubts over whether it will remain a temporary measure.
“We know that regarding taxes nothing is more permanent than something that comes in temporarily,” he tells iGB.
“I have seen this so many times in different jurisdictions and they say, ‘Oh no, this is a tax for a state of emergency’ and then suddenly you get through the tax code, and you’re done. It is permanent.”
Why is the tax necessary?
Alongside other taxes such as additional contributions from the oil and gas sectors, the Colombian government is hoping to raise COP1 trillion (£195.6 million/€234.3 million/$242 million) from the state of emergency tax.
For Carrasco, the Colombian government’s actions reflect the country’s overall approach to politics today.
President Gustavo Francisco Petro Urrego has been labelled Colombia’s first left-wing president and his tenure has been far from an easy ride with a distinct lack of political support from congress throughout his tenure.
It is likely the gambling VAT could face the same fate as other policies that have been shut down by congress in Colombia.
“This government is quite a mess, it’s not organised,” Carrasco says. “It’s just a general mess in most of the sectors of the economy, oil and gas, transportation, gambling in this case, even banking. They want to try to do very structural changes in the government, but without a real expert in the process.”
Gambling regulator Coljuegos is proving unhelpful to the sector, Carrasco says, despite being a government institution, failing to represent the industry’s views on the matter of VAT.
Players could turn to the black market
The new VAT could be a huge blow to the gambling sector in Colombia, with the industry providing big benefits to the nation’s healthcare system.
Coljuegos president Marco Emilio Hincapié previously stated the system would receive around COP419.5 billion in contributions from gambling licence fees across 2024.
While Petro believes the new tax will add to that contribution, Carrasco warns it could in fact have the reverse effect, as players are driven to the black market.
“Players will use VPNs and then play in many of those very well-known brands of the black market,” Carrasco adds.
“We were expecting the regulator to say, ‘Hey, this will jeopardise our income, it will jeopardise the expected collection of gaming duties that are aiming to go to the health system.’ But they have not made any statement.”
Another challenge for operators is that in order to collect the tax in the first place, they will have to amend their gaming systems, which then need to be recertified. If they fail to recertify, they risk breaching the country’s gambling laws.
Therefore, Carrasco believes it’s crucial that a transition period is put in place for operators to adapt to the new tax.
“It’s kind of like pushing the operators into the fence,” Carrasco says. “You need to collect these taxes, but you [don’t have the capability]. But if you don’t pay taxes, then you commit a crime. If you start collecting taxes after amending the system without approval of the regulator, then you’re breaching the law.”
Is there hope?
The new tax has sent shockwaves through the Colombian gambling industry and there’s real concern over its impact not only on gambling, but the sector’s contributions to the health sector.
There could still be light at the end of the tunnel, however. In Colombia, the regulator is appointed by the president. With the current government’s term ending next year, change could be afoot.
“We have the first left-wing government in our history and they are not doing great,” Carrasco concludes.
“The expectation is that there will be a change in terms of political management. So probably we can expect that this regulator won’t last more than a year.”
Original article: https://igamingbusiness.com/legal-compliance/colombia-gambling-vat/
