New Colombia gambling VAT raising more questions than answers

As Colombia embarks on a significant fiscal change with the introduction of a 19% value-added tax (VAT) on gambling, legal experts, like Juan Camilo Carrasco, urge the government for greater transparency. The critical questions that arise are whether this measure will be temporary and if it will be applied to turnover or player deposits.

Since regulating online gaming in 2016 through its Egaming Act, Colombia has cultivated a sophisticated gambling regulatory framework, positioning itself as a leader in Latin America. This regulatory environment has enticed prominent international operators, including RushBet and Betano, and is projected to generate over $2 billion in gross gambling revenue (GGR) by 2027, according to forecasts from H2 Gambling Capital.

However, a significant disruption within this burgeoning market occurred in September 2022, when the Colombian government proposed a 19% VAT targeting online gambling operations.

Government Implements Gambling VAT via Exceptional Measure

Despite an initial backlash that saw the proposal rejected in December, the Colombian government moved forward with the VAT in January 2023 as a temporary measure, set to last for an initial period of 90 days.

The legal basis for this implementation relies on Article 213 of Colombia’s Political Constitution, designed for use during exceptional circumstances that threaten state security and institutional stability. Carrasco, a partner at Bogotá law firm Asensi Abogados, notes, “This measure is typically invoked during severe public order disturbances and necessitates solutions outside the government’s typical powers.”

Yet, under the current state of emergency, ambiguity lingers regarding whether the VAT applies to player deposits or overall turnover. Following discussions with Colombia’s finance minister Diego Guevara, Carrasco argues that taxing deposits is a more rational approach. He cites Article 420 of Colombia’s tax code, which states that “the taxable base of the sales tax on games of chance and luck will be constituted by the value of the bet.” As such, Carrasco asserts that the tax should only be levied on deposits, as the current wording of existing laws implies such an application.

Will the Emergency Tax Measure Be Extended?

Additional ambiguities surface regarding the supposed temporariness of the tax. Carrasco points out that the initial 90-day period could be extended twice, allowing for a total of an additional 180 days. However, the second extension would require Senate approval, a process Carrasco describes as potentially “not smooth.”

As Congress continuously reviews the situation, Carrasco expresses skepticism regarding the tax’s temporary nature, reminding industry stakeholders that “nothing is more permanent than a temporary tax.” He elaborates: “Countless times, we’ve seen jurisdictions introduce temporary taxes that later become permanent fixtures in their tax code.”

Understanding the Rationale Behind the Tax

The Colombian government anticipates raising COP 1 trillion (approximately £195.6 million/€234.3 million/$242 million) through this emergency tax, along with additional contributions from the oil and gas sectors. Carrasco views this move as indicative of a broader political climate marked by instability.

Led by President Gustavo Francisco Petro Urrego, the first left-wing president in Colombian history, the current administration has faced significant challenges, including a lack of congressional support. Carrasco warns that the gambling VAT could share the fate of other policies previously stymied by Congress, underlining the disorganization evident across various economic sectors, including gambling, oil and gas, transportation, and banking.

Despite this, Carrasco notes a lack of representation from Coljuegos, Colombia’s gambling regulator, adding that the agency has not effectively advocated for the industry’s position on the new VAT.

Risk of Players Turning to the Black Market

The implementation of the VAT could pose a substantial threat to Colombia’s gambling sector, which has historically contributed significantly to the nation’s healthcare system. Coljuegos President Marco Emilio Hincapié stated that the gaming sector is projected to contribute approximately COP 419.5 billion in licensing fees throughout 2024.

While the administration believes this new tax will augment those contributions, Carrasco cautions that it may inadvertently drive players to the black market. He states, “Players may resort to using VPNs to access popular black market platforms.”

There is also concern regarding the operational strain on gambling operators, who must modify their gaming systems to comply with the new tax regulations and subsequently secure recertification. Failure to do so could result in violations of Colombian gambling laws.

Given these circumstances, Carrasco emphasizes the necessity for a transition period that allows operators to adapt to the regulatory changes. “Operators are effectively being placed in a precarious position,” he explains. “The system must collect taxes, yet operators face systemic deficiencies. Collecting taxes without regulatory approval risks breaching the law.”

Is There Hope for the Future?

The introduction of this VAT has generated significant anxiety within Colombia’s gambling industry regarding its potential repercussions. Nonetheless, there may be a glimmer of optimism. With the current government’s term set to expire next year, there could be an overhaul of the regulatory landscape.

“Colombia is witnessing its first left-wing government, and the results have been mixed,” Carrasco concludes. “There is speculation that we may see changes in political management, and it’s likely that this regulatory framework may not remain unchanged for long.”