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Online gambling groups in Brazil and Colombia have had contrasting fortunes in their lobbying efforts to avert new taxes being applied to the industry.

Operators awaiting the opening of Brazil’s regulated market are set to be hit with an additional “sin tax” some months following market launch, after the Federal Senate approved a major tax-reform law late on Thursday (December 12) without including exemptions sought by the industry.

When the lower house of Congress approved the tax-reform measure in July, federal deputies decided to include fixed-odds betting and fantasy sports among a defined list of “goods and services harmful to health or the environment” that will be subject to the newly established selective tax.

Betting industry groups IBJR and ANJL argued before at least two Senate public hearings on the tax reform that licensed operators should be exempted from the selective tax, on the basis that they will already be subject to a specific tax of 12 percent of gross revenue when Brazil’s market goes live from January 1, 2025.

However, the industry’s argument quickly became much harder to make amid the series of negative headlines related to Brazil’s unregulated market and escalating political and media concerns of problem gambling, leading to the formation of a special Senate commission to probe the industry in the run-up to regulation. 

As a result, few observers expected operators to be able to avoid what Brazilian media has dubbed the “sin tax” and the industry’s fate was all but sealed a few days prior to Thursday’s Senate vote on the tax reform when the senator serving as rapporteur for the legislation retained language to apply the new tax to fixed-odds betting, alongside other “prediction competitions” such as wagers on horseracing.

Approval of the tax-reform law by the Senate is not the end of the story as the bill does not actually establish a rate for the new selective tax.

That will instead be determined by further legislation in 2025 when Brazilian industry groups will be expected to lobby for a lower rate that can be absorbed by operators already facing a relatively high tax burden overall.

On top of the 12 percent gambling tax, operators in the Brazilian market in 2025 will pay additional federal and local taxes amounting to at least 11-14 percent of gross revenue.

But those various other taxes will also be phased out by the new tax reform law and replaced with two VAT-like taxes to be applied at a combined rate of 26.5 percent once they are fully implemented in 2033.

The tax reform bill does confirm that the two taxes — IBS and CBS — will be applied to gross gaming revenue (GGR) after prize payouts in the case of gambling, while operators also may first offset any other federal taxes paid.

Still, that appears to amount to an overall effective tax rate in excess of 35 percent, even before the new selective or sin tax is applied as well. 

Taxes In Focus In Colombia, Peru

As Brazil’s tax reform advances, a comparable initiative in Colombia has collapsed, in welcome news for online gambling companies.

The government of President Gustavo Petro submitted a sweeping finance bill to Congress several months ago seeking to raise several billions of dollars in additional revenue to cover the 2025 national budget, in part by applying Colombia’s value-added tax (VAT) to online gambling at a rate of 19 percent.

That would have directly reversed a tax reform law approved in late 2016 which exempted operators in Latin America’s first bona fide licensing regime for online gambling from paying VAT on top of the 15 percent of GGR they distribute to Colombian public health services.

Lawmakers swiftly removed specific articles to apply VAT to online betting from the latest version of the tax reform bill that Petro’s finance ministry presented to Congress early last week.

Colombia’s Senate and House of Representatives then decided to shelve the tax reform measure altogether, in a significant defeat for Petro’s government.

In a fiery statement published on social media, the Colombian President slammed lawmakers for declining to lower taxes on the middle class “to protect large corporations, multinational energy companies and shadowy executives for online gambling”.

He also pledged to revisit tax reforms in 2025 and specifically address tax evasion, “starting with online games of chance and contraband as the main priority”.

That taxes will be back on the agenda next year suggests Colombian government officials “lack a real understanding of the industry and its financial operations”, warned Juan Camilo Carrasco, a Bogotá-based gambling law expert with Asensi Abogados.

“It is the responsibility of the industry to raise its voice, be heard, and broadly explain the devastating impact of including VAT for online gambling,” Carrasco told ���ĺ������� GamblingCompliance.

As highlighted by ���ĺ�������’s Latin America Online Outlook report published last month, new taxes for online gambling is a regional trend that extends beyond Brazil and Colombia.

Peru’s government published a contentious legislative decree in September to impose a new consumption tax on all online bets.

On Saturday, the Peruvian Ministry of Economy and Finance published two supplementary decrees to bring both the consumption tax and an underlying tax on licensed operators' gross revenue into formal effect as of January 1.

Through Supreme Decree No. 254/2024, the ministry clarified that the 1 percent consumption tax will apply not only to licensed operators headquartered outside Peru but also to local subsidiaries of foreign companies and Peruvian-headquartered companies.

The decree also specifies that the consumption tax on every bet will be applied whenever money or credits for a sports bet or online casino game are debited from the player's account to place the wager.