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A number of Colombia’s licensed operators will be forced to shut down if a tax now being applied to online gambling deposits remains in place, according to a leading industry association.
In a statement provided to Vixio GamblingCompliance, Bogotá-based trade association Fecoljuegos warned that some operators have seen a drop of up to 50 percent in the amounts being deposited on their platforms since operators were obliged to start collecting value-added tax (VAT) on deposits in late February.
Operator gross revenues are also down around 30 percent over the same period, while their operating rights payments are down as much as 57 percent, Fecoljuegos said.
The 19 percent VAT on deposits was imposed via a February 14 emergency decree in order to raise additional funds to support the Colombian government’s response to a public-order emergency in the Catatumbo region.
The deposit tax is only temporary but it is due to remain in effect through to the end of December, per Article 10 of Decree 175.
Leading operators such as BetPlay, Wplay and Rush Street Interactive’s Rushbet are all currently offering deposit bonuses to fully cover the VAT being applied to their customers.
Still, Fecoljuegos warns that such promotional offers “while effective in the short-term, represent an unsustainable economic cost”.
“Companies in the industry are making an extraordinary effort to maintain their operations, absorbing the cost of VAT with promotional bonuses so that their players’ ability to gamble is not affected from the outset,” stated Evert Montero Cárdenas, president of Fecoljuegos.
“But this method has its limits, and if the tax remains unchanged, many platforms will have no choice but to close or cease their activities in Colombia.”
Fecoljuegos is asking the Colombian government to establish a joint “technical discussion group” to review the impact of the deposit tax and “redraw the fiscal rules based on evidence, protecting sustainable revenues, the legal market and the permanence of compliant operators”.
“Our expectation is that they will recognise this measure, far from raising revenues, has led to a dramatic increase in the effective tax base, bringing it to 66 percent of real income (51 percent in VAT plus 15 percent in operating rights fees), which is one of the highest in the country, even above other sectors such as tobacco,” Fecoljuegos told Vixio.
“This situation incentivises the migration of the consumer to illegal platforms that do not pay taxes and have a higher margin to compete unfairly.”
Seeking Relief
Although the new tax is expressly designed to raise revenues to mitigate the crisis in Catatumbo, there are obvious concerns that the move may also have been politically motivated. President Gustavo Petro vowed to raise taxes on online gambling after an initial plan to apply VAT to the industry was rejected by Congress late last year.
After his proposed budget plan was defeated, the President publicly accused unnamed gambling operators and multinational energy companies of underhand lobbying tactics.
In addition to the deposit tax for online gambling, Decree 175 imposes a new tax of 1 percent on the sale of hydrocarbons or coal extracted within Colombia.
An agreement by Petro's government to now revisit how VAT is applied to online gambling is not the only potential source of relief for the industry.
Colombia’s Constitutional Court has yet to issue a ruling on the legality of the tax decree, said Juan Camilo Carrasco, a partner at Asensi Abogados law firm in Bogotá.
However, the court is expected to rule as soon as next month on the constitutionality of an initial decree that granted the government emergency powers to address the crisis in Catatumbo.
If the court annuls that primary decree, then all dependent decrees including Decree 175 would also be nullified, Carrasco told Vixio.
