During the pandemic, one of the activities that has seen the greatest increase in popularity was online gambling, significantly boosting the entertainment sector.
This type of activity, which is part of games of chance and luck, is included in the Gross Domestic Product (GDP) under the categories of artistic, entertainment and recreation activities and services. Between 2006 and 2020, these activities grew at an average annual rate of 4.4%, but between 2021 and 2023, this growth accelerated significantly, reaching an average of 26.8%.
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And while this increase has meant a dynamism for the sector, today online betting is the main target of the tax adjustments of the financing bill, as the Government seeks to tax them with a 19% VAT to raise $2.1 billion in 2025.
According to the document, the Government estimates that this type of betting went from registering revenues of $16 billion in 2021 to $35.6 billion in 2023 and taxing them would not generate an inflationary impact.
“This behavior demonstrates the strong position the sector has to contribute more equitably to the tax system without compromising its economic viability. Gambling can be considered a luxury good. Unlike essential goods, such as food and medicine, gambling is not necessary for everyday life or for the fundamental well-being of people.“, the Ministry of Finance assured.
The proposal also highlighted that the current exclusion of VAT for online gambling “creates a distortion in the market, since these digital services enjoy preferential treatment compared to physical establishments that offer games of chance and are already taxed“.
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Games of chance.
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In light of the Government’s intention, both trade unions and online platform operators have pointed out that the balance presented in the bill is far from reality.
They also claim that the increase in costs for legal platforms would encourage players to migrate to illegal platforms, reducing formality, and having a negative impact on transfers to the health system.
According to Juan Carlos Restrepo, president of Asojuegos, the Colombian Association of Gaming Operators, The collection of $2.1 billion in VAT that the Ministry of Finance budgets for these games “it is impossible”.
“In online betting, a user of these platforms makes a deposit in his player account and with that same amount he can bet several times, reaching an average of up to six times the original value deposited. The Government’s proposal, where they estimate bets of $35.6 billion for the year 2023, does not tax real money, but credits to participate in the games.” Restrepo explained.
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Juan Carlos Restrepo, president of Asojuegos.
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He added that the real income of operators, who have contracts with Coljuegos, was $2.1 billion for the same year. “Trying to apply a VAT that would be equivalent to 100% of the resources managed by operators is completely unfeasible.“Restrepo explained.
According to Restrepo, online gaming operators in Colombia must comply with “strict tax regulations,” which include the payment of exploitation rights, income and other taxes, as well as operating costs related to technology, marketing and advertising.
“Of the 100% of bets, 93% is returned to the player, leaving a real gross margin of 7% on average, which means that operating rights, costs and expenses must be taken into account. The financial model would not allow an additional tax to be absorbed without seriously affecting the operation, to the point of making it unviable. If VAT is applied, the return to the player would be reduced from 93% to 71%-75%; this would cause players to migrate to illegal or international platforms that are not subject to these tax burdens.“, Restrepo said.
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Under that line, Evert Montero Cárdenas, president of Fecoljuegos, Colombian Federation of Entrepreneurs of Games of Chance and Luck, The association representing more than 100 companies in the industry said that the government does not know how the online betting platform business actually operates, since the money they are seeking to raise “does not exist.”
“We have the worst partner, as he does not understand how this activity works. Those $2.1 billion do not exist; that is not real, since the deposits made by users do not constitute income for the bookmakers. These are deposits or credits that are made on a participation credit platform and do not represent an increase in the betting house’s assets.“, Montero said.
It should be noted that the Colombian Political Constitution in its article 336 granted the State the exploitation of the rent monopoly of games of chance and luck, allowing it to obtain income from this activity. These resources are destined for priority social purposes. In addition, Current legislation does not establish limitations on the types of games that the State can exploit.
However, when the Minister of Finance was consulted, Ricardo Bonilla, on the possible negative impact on transfers to the health system, once the platforms are taxed, The head of the portfolio responded that “there would be no negative impact”.
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