Earlier this month, it was reported the Colombian government would assess proposals to implement a new 19% VAT on online gambling operators, with president Gustavo Petro set to review the proposed tax as part of his upcoming budget.

Colombia became the first LatAm country to regulate igaming in 2016 through the Egaming Act. Operators with a return-to-player (RTP) rate of 83% of stakes are taxed 15% of GGR. While operators with an RTP of over 83% pay 17% of GGR.

However, the Colombian senate analysed the current rate in February, and it now appears Colombian operators could be slapped with a further tax.

That could have “devastating consequences” for the Colombian gambling industry, trade body Asojuegos has warned, leading to rising interest in the black market and less funding for the health sector from gambling taxes.

According to Asojuegos, the government hopes to collect COP2.1bn from VAT on gambling, a target the association believes is “impossible”. The government has based the proposed tax rate on a total betting and gaming handle of COP35.6bn Colombia in 2023.

But the actual income for unlicensed operators in 2023 was COP2.1bn, Asojuegos notes.

“Trying to apply a VAT that would be equivalent to 100% of the resources managed by the operators is completely unfeasible,” it added

The association believes the new tax would lead to operations becoming “unviable” and could turn operators and players turning to the black market to avoid additional tax fees.

“If VAT is applied, the return to the player would be reduced from 93% to 71%-75%, which would cause players to migrate to illegal or international platforms that are not subject to these tax burdens, which would decrease the sector’s income,” Asojuegos president Juan Carlos Restrepo warned.

Potential impact on health transfers from Colombian gambling

In August, Colombian gambling regulator Coljuegos revealed COP231.3m (£41.9m/€49.6m/$55m) was raised in Q2 from gambling taxes to fund the country’s health sector.

“A negative change in regulation could have a significant impact on these revenues, which currently benefit health and other social areas of the country,” the association said.

Asojuegos has offered to advise the government on alternative solutions to the VAT levy.

“The association has reiterated its commitment to fiscal transparency and the fight against illegality in the sector and is willing to participate in working groups with the national government to find solutions that do not harm the competitiveness of legal operators or affect the income that the sector transfers to health,” it said.

VAT could have wider economic and legal implications

An added VAT could have wider economic implications, Asojuegos argues.

“Online gaming operators in Colombia reinvest a large part of their real gaming revenues in technological development, job creation and local advertising, which contributes to strengthening the economy,” Asojuegos added.

“The introduction of VAT would not only make these companies unviable, but would also affect the country’s competitiveness, discouraging foreign investment in the sector.”

In addition to the economic and social effects, Asojuegos also questions the proposal’s legal consequences

It could lead to industry stakeholders having to break their contractual agreements to save money. Asojuegos says this could seriously affecting the sustainability of the sector in Colombia.