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Punitive new taxes for online gambling have brought legal insecurity to the regulated markets of Colombia and Peru and threaten to drive both operators and players offshore, according to industry experts.
Speaking at last week’s SBC Summit Americas in Florida, various executives and legal advisors voiced frustration at additional taxes being imposed on player deposits or turnover in two neighbouring jurisdictions hitherto lauded as regulatory models for the Latin American region.
In Colombia, a presidential decree of February 14 extended the country’s value-added tax (VAT) to formerly exempt online gambling operators, with a 19 percent VAT now being levied against all amounts deposited by players into their accounts.
Evert Montero Cárdenas, president of industry association Fecoljuegos, repeated recent warnings that deposits and revenues have since dropped dramatically, and that the current licensed operator strategy of absorbing the deposit tax by offering equivalent bonuses to players is not financially sustainable.
“It is having a tremendous effect on the market,” Montero told SBC Summit delegates.
Applying VAT to player deposits instead of gross gaming revenue (GGR) “disrupts the whole economics of the industry”, while the current legal insecurity makes it hard for operators to plan additional investments or create jobs, added Iliana Pineda, chief legal and compliance officer for Colombian operator Wplay.
“It is shooting ourselves in the foot,” Pineda said.
As things stand, the VAT on deposits is set to be a temporary tax in place through to the end of this year, as part of a series of emergency measures to fund the Colombian government’s response to violence in the Catatumbo region.
But the situation could change.
Colombia’s Constitutional Court earlier this month ruled that an initial decree granting the government emergency powers to address the Catatumbo violence is only constitutional to the extent that those powers are genuinely used to respond to the crisis.
The court now has until June 25 to rule on the validity of Emergency Decree 175, which imposed both VAT on online gambling and established a tax on energy companies as additional revenue sources for the government.
If the court does find the decree to be unconstitutional, which industry insiders acknowledge to be the less likely outcome, then the deposit tax will no longer apply. If the decree is upheld, VAT will be levied on all deposits through to December 31.
Problems In Peru
The tax challenges in the Colombian market are very similar to those of its southern neighbour, which completed a licensing process for online gaming and sports betting last year.
In December, Peru’s Ministry of Economy published a decree to subject Peruvian players to a consumption tax of 1 percent on every bet they place with the country's newly regulated operators.
The ministry has since agreed to reduce the consumption tax to the lowest possible rate of 0.3 percent, but only until June 30, when the 1 percent rate will be applied.
The consumption tax is separate from the 12 percent tax that operators also pay on their gross revenue.
The application of the consumption tax for online gambling and sports betting on a turnover basis differs from Peru’s land-based gaming market, where the same tax is levied against the GGR of casinos and slot halls, noted Carlos Fonseca Sarmiento, a Lima-based gambling law expert.
That is especially challenging for online casino games, as 1 percent of the bet will need to be continually collected for every spin, said Andrea Rossi, commercial director for Betsson in Latin America.
Rossi warned that a turnover-based tax would drive players to illegal gambling platforms, where players would be able to stake the full value of their wager.
Without a change in policy, “channelisation in the Peruvian market, unfortunately, is going to be very poor and the illegal market is going to be very successful, which is exactly what the regulator does not want”.
Industry associations have been trying to convince the economy ministry to pivot away from applying the tax against the value of every bet, but without success so far.
Some operators, in turn, have applied for court injunctions on the grounds that the consumption tax is being applied unconstitutionally.
Beatriz Martorello, head of legal and regulatory affairs for Rush Street Interactive in Latin America, said relief could also come through legislation addressing the consumption tax being considered in Peru's Congress.
“We have the expectation that this will be positive and will change the situation,” she said.
Enforcement In Focus
Fonseca and other SBC Summit speakers expressed frustration that Peru’s Ministry of Economy, which oversees tax policy, evidently has not consulted with specialist gambling regulators within the Ministry of Foreign Commerce and Tourism (Mincetur), who have technical expertise and otherwise oversaw a smooth transition to a regulated market hosting some 70 licensees.
Colombian delegates, meanwhile, lamented that the deposit tax came after eight years of legal stability in the first major Latin American country to fully regulate online gambling.
Montero of Fecoljuegos said the new tax underlies how operators across Latin America need to strengthen their lobbying associations because they will not be able to rely on advertisers, media companies or sports teams to go to bat for the industry, even though they also benefit from it financially.
He added that the new deposit tax also makes it even more important for Colombian authorities to step up their enforcement efforts against offshore gambling sites that are not subject to any taxes.
Regulator Coljuegos has to date blocked more than 20,000 illegal sites and was granted broader enforcement powers under both February’s Decree 175 and a more recent resolution of Colombia’s Ministry of Technology that enables the gambling agency to directly order Colombian ISPs to block access to illegal operators.
Still, Montero said website blocking is not fully effective as it is very easy for offshore sites to switch to an alternative web address.
He expressed frustration at a “lack of political will” on the part of the Colombian authorities to also block payments and advertising for illegal operators.
The Fecoljuegos president further called for Colombia to require either licensing or registration of online gambling suppliers, as is the case in Peru, to stop suppliers from supporting legal operators in Colombia while providing the same games to unlicensed platforms.
