The Colombian government has elected to uphold a 19 per cent VAT on online gambling, a decision that has caused significant unrest among gambling operators within the country. Announced as part of a broader tax reform bill, this measure has been met with strong opposition from industry leaders who argue that it fundamentally misunderstands the nature of the online gambling business model.
The Colombian Federation of Gambling Entrepreneurs (Fecoljuegos) was quick to express its discontent, pointing out a critical misconception in the application of this tax. According to Fecoljuegos, the VAT is applied to deposits on online gambling platforms, which they claim are based on a “fictitious ground” rather than any real business variable. The association compared this to applying a similar tax to financial sector deposits, where money circulates multiple times within the system but does not result in added value or capital income for the financial intermediary.
Players’ deposits in online gambling ventures are transformed into digital currency, which then circulates an average of six times, Fecoljuegos noted. They highlighted that approximately 94 per cent of this money returns to players as prizes, leaving the operators with a gross gaming revenue of around 6 per cent. “It is on this value, not the deposits, that any technically fair and sustainable tax burden should be calculated,” the association argued.
The concern among operators is that the current level of taxation is financially unsustainable. If these costs are transferred to users, it would reduce the competitiveness of local operators compared to international platforms that do not carry these burdens. These foreign competitors often offer better rates, diverse global payment methods, and even cryptocurrencies, making them more attractive to players. Conversely, if operators choose to absorb the costs themselves, it could threaten the viability of legal operations and create an environment ripe for illegal activities to flourish.
Adding to the industry’s apprehensions, the Colombian Association of Gaming Operators (Asojuegos) has warned that the VAT not only threatens operators’ profitability but also risks reducing their contributions to vital public services such as healthcare. The association’s president, Juan Carlos Restrepo, shared with the media that the expected trend of direct transfers to healthcare has already shown signs of weakening. He noted that even the VAT collected has not maintained its previous strength.
Restrepo emphasized Asojuegos’ willingness to engage in dialogue with the government to explore alternative solutions that would not compromise the sector’s sustainability or the essential resources allocated to healthcare. They propose revisiting the tax structure so that it doesn’t fall directly on player deposits, potentially offering a more balanced approach that safeguards the interests of all stakeholders involved.
On the other side of the argument, proponents of the tax maintain that it generates essential revenue for the government, which is critical during a time of economic uncertainty. They argue that without this revenue, essential public services, including healthcare and education, could face funding shortages. For the government, the VAT on online gambling is seen as a necessary measure to ensure stable financial inflows that support broader fiscal responsibilities.
Critics, however, contend that the long-term consequences of maintaining such a high tax rate could backfire. By driving players towards unregulated international platforms, the government risks losing not only the revenue from these taxes but also the ability to regulate and monitor gambling activities effectively. This could inadvertently lead to a rise in gambling-related issues, as players engage with platforms that do not adhere to local regulations or responsible gambling practices.
In seeking a resolution, industry leaders suggest that a more nuanced tax approach, which takes into account the unique aspects of the online gambling industry, could potentially bridge the divide between generating government revenue and maintaining a thriving legal gambling sector. A tax system that aligns more closely with the industry’s operational realities might ensure that operators remain competitive while still contributing to public finances.
As Colombia navigates this challenging landscape, the outcome of this dispute holds implications not only for the local gambling industry but also for how governments worldwide might approach the taxation of digital industries in an increasingly globalized economy. The balance between fiscal policy and industry vitality remains a delicate one, with the potential to set precedents that could influence similar debates on international stages.
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