Colombia gambling VAT to be in place until December

The value-added tax (VAT) on gambling in Colombia is set to be implemented until December, specifically affecting player deposits, as indicated by a government notice dated February 14.

After considerable debate surrounding the scope and duration of this VAT measure, the Colombian government issued an updated decree (Decree No. 0175) last week, which temporarily rescinds the VAT exemption for online gambling activities. This directive pertains to Article 420 of Colombia’s tax code.

The VAT will be imposed at a rate of 19% on player deposits, commencing Friday, February 21. The tax applies to various payment methods, including cash, bank transfers, and cryptocurrencies, even though cryptocurrencies are not officially accepted as a deposit medium in Colombia.

This decree introduces a simplified calculation procedure; the VAT is computed on the deposit amount and subsequently divided by 1.19. For example, if a player makes a deposit of $100, approximately $16 will be deducted for VAT, leaving the player with about $84 available for wagering.

Gambling operators bear the responsibility for filing and remitting the VAT. Non-compliance may lead to severe penalties, including prison sentences ranging from 48 to 108 months, in addition to various administrative sanctions.

The decree also aims to enhance the operations of Coljuegos, Colombia’s gambling regulatory authority. This body will be empowered to request that internet service providers block access to illegal websites involved in the unauthorized exploitation, operation, sale, payment, advertisement, or marketing of games of chance.

Points of Contention in Colombia’s Gambling Sector

Despite the Colombian government’s intentions to clarify the VAT framework, several contentious issues persist that may pose challenges for the industry.

Notably, Decree No. 0175 does not allow for a transition period for operators to adapt to the new taxation structure.

Operators are required to make significant modifications to their gaming systems to enable tax collection, which necessitates recertification. Failure to achieve recertification could result in violations of the country’s gambling regulations.

Local attorney Juan Camilo Carrasco, a partner at Bogotá law firm Asensi Advogados, emphasized the crucial need for operators to be allocated adequate time to implement modifications and recertifications to their systems.

“It’s akin to cornering the operators,” Carrasco explained, noting that operators are compelled to collect taxes without the necessary capabilities. “Failing to comply with tax obligations constitutes a criminal offense, while premature collection of taxes without regulatory approval also breaches the law.”

Furthermore, Carrasco expressed skepticism regarding whether the VAT will indeed expire in December, suggesting that it could potentially become a permanent fixture through future tax reforms.

“Historically, temporary taxes often become permanent,” he noted.

Interestingly, Decree No. 0175 references both local and foreign operators, despite foreign operators operating without valid licenses being banned in Colombia, a nuance Carrasco describes as “rather unusual.”

The Rationale Behind Introducing the Gambling VAT

The concept of imposing VAT on gambling was initially introduced late last year, but efforts to implement it were halted in December.

However, Article 213 of Colombia’s Political Constitution facilitated its reintroduction in January on an emergency basis.

Article 213 allows the president to declare a “state of internal commotion” when there is a “serious disturbance of public order” threatening institutional stability, state security, and social coexistence.

According to Decree No. 0175, the VAT measures aim to fund expenses stemming from ongoing conflicts in the Catatumbo region of Colombia, where violent confrontations among rebel factions have led to the displacement of approximately 30,000 individuals.

The government asserts that the situation necessitates financial resources “not anticipated” in the general budget to mitigate disturbances and prevent the escalation of their effects.