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In January 2025, Colombia introduced a temporary 19% value-added tax (VAT) on gambling, prompting local attorney Juan Camilo Carrasco to seek clarity on the measure’s long-term implications. The significant questions on many minds are whether this VAT will remain a short-term policy and whether it will apply to player turnover or deposits.
Colombia: A Leader in Gambling Regulation
Colombia has established itself as a pioneer in the Latin American gambling landscape, becoming the first nation in the region to regulate online gaming back in 2016 with its EGaming Act. This progressive framework has drawn significant international operators like RushBet and Betano.
According to H2 Gambling Capital, Colombia’s gross gambling revenue (GGR) is projected to exceed $2 billion by 2027. However, the market faced unexpected turbulence in September 2024 when the Colombian government announced plans to implement a 19% VAT on online gambling.
Government Implements VAT as an “Exceptional Measure”
Though an initial attempt to impose the tax was blocked in December, the Colombian government moved forward with its implementation in January, classifying it as a temporary measure for an initial period of 90 days. This move was facilitated by an exceptional provision outlined in Article 213 of Colombia’s Political Constitution, designed to allow swift action during severe public order issues. Carrasco, a partner at the Bogota law firm Asensi Abogados, emphasized that such measures are typically reserved for crises that threaten state stability. He raised concerns, however, about inconsistencies in the tax’s application to gambling turnover versus player deposits.
After discussions with Colombian Finance Minister Diego Guevara, Carrasco expressed optimism that the government would recognize that taxing deposits makes more sense than taxing turnover. He cited Article 420 of Colombia’s tax code, which states that the taxable base for sales tax on gambling should represent the bet’s value, suggesting it should focus on deposits rather than overall turnover.
What Does the Future Hold for This Emergency Measure?
Despite its initial temporary nature, there is potential for extending this tax twice, effectively extending it for an additional 180 days. However, Carrasco cautions that securing senate approval for a second extension may not be straightforward.
While the congress is conducting ongoing reviews of the tax, Carrasco remains skeptical about its temporary status, noting that legislation introduced under a banner of emergency can often become permanent. “Historically, when taxes are introduced as temporary, they tend to become a fixture in the tax code,” Carrasco observed, reflecting concerns shared by industry observers.
The Need for the Tax: Economic Considerations
The Colombian government aims to raise COP 1 trillion (approximately £195.6 million/€234.3 million/$242 million) from this emergency tax and other revenue-generating initiatives, particularly from the oil and gas sectors.
Carrasco believes the government’s approach reflects broader political turbulence, particularly under President Gustavo Francisco Petro Urrego, who has been marked by political opposition and disorganization. “The current administration lacks cohesion and expertise across various sectors, including gambling and banking,” Carrasco noted, expressing concern that the gambling VAT may face resistance similar to other disrupted policies.
Risks of Driving Players to the Black Market
The introduction of VAT poses significant risks to the Colombian gambling industry, which plays an important role in financing the country’s healthcare system. Coljuegos, the national gambling regulatory body, estimates it will collect COP 419.5 billion in contributions from licensing fees throughout 2024. Contrary to President Petro’s expectations that the new tax would enhance contributions, Carrasco warns that it may inadvertently drive players toward the black market.
“Players are likely to use VPNs to access well-known illegal brands,” he stated, cautioning that the lack of regulatory response to these potential ramifications is troubling. Operators will face the additional challenge of modifying their gaming systems to comply with the new tax, requiring recertification to avoid violating gambling laws. Carrasco insists that a transition period is crucial to enable operators to adapt without breaching the law.
A Glimmer of Hope?
As the Colombian gambling industry grapples with the shockwaves from this new tax, questions remain regarding its broader impact on the economy and healthcare contributions. However, there is potential for change on the horizon, as the current government’s term will conclude within the next year.
“There is a sense that the first left-wing government may not deliver effectively,” Carrasco concluded. “With political changes on the horizon, we might see a shift in regulatory management.” As Colombia navigates these complexities, industry stakeholders will be watching closely for potential policy adjustments that could shape the future of gambling in the country.
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