Games of chance to pay VAT in Colombia: Tax specialist Francisco Alvarez Ramirez analyzes the measure

Due to the state of commotion declared by the National Government, gambling or games of chance in Colombia will be subject to VAT to raise close to $330 billion.

Government sources clarify that this decision will last only 90 days and has been taken to raise funds and address the problems in Catatumbo, which suffers from clashes between the dissidents of the FARC and the ELN.

Regarding this measure, SoloAzar consulted Francisco J. Álvarez Ramírez, Partner at Dos Alvarez, a lawyer from the Universidad del Rosario, with an emphasis on Tax Law and a tax specialist at the Universidad de los Andes. He analyzes the impact that the measure will have on players and consumers, on the entertainment and technology industry, and its economic effects. He then makes a comparison with other countries and talks about the legal and constitutional perspective and possible alternatives to taxation.

1. Impact on players and consumers:
• The measure could affect players by increasing the cost of participation in legal platforms, reducing the amount available for bets and, in some cases, discouraging their use.

• A high tax could encourage the migration of users to illegal or unregulated platforms in Colombia, which are not subject to this tax burden. This would increase the risk of fraud and the lack of consumer protection. A particular case would be the use of VPNs to access foreign platforms and avoid the tax, affecting the expected collection.

2. International comparison
• Several countries have implemented taxes on online gambling, with varying results. Colombia can learn from those experiences where excessive tax burdens led to the contraction of the sector and the migration of players to unregulated platforms or other jurisdictions.

• The key to effective regulation is to combine reasonable taxation with incentives for legal operators to invest in the country. If Colombia manages to position itself as an attractive destination for these companies, it could benefit through other taxes derived from its operation, such as income tax and labor contributions, etc., in addition to job creation.

3. Economic effects and collection
To assess the viability of the measure, the government must present clear projections on the expected collection, considering factors such as:

• The possible decrease in the number of players due to the tax.
• The reduction in the investment of these platforms in the country. A clear example is the impact on sponsorship of sporting events, especially in professional football, where these companies not only pay to appear on the team shirts, but also contribute to the hiring of top international players.

A poorly designed tax could generate the opposite effect to that expected, affecting investment in the entertainment sector and decreasing overall revenue.

4. Regulation and oversight
• Instead of imposing a greater tax burden on consumption, the government should explore strategies to attract foreign investment in the sector. The key is not to tax more, but to encourage a greater volume of operations within the country.

• If the effect of the measure is a decrease in investment, the natural consequence will be less revenue, which could end up affecting other sectors that indirectly depend on this industry.

5. Impact on the entertainment and technology industry
• The online betting industry is directly linked to technological development, since these platforms require constant innovation in software, cybersecurity and user experience. A high tax could discourage investment in technology and slow the growth of the sector in Colombia.

• ​​Another obvious impact would be the reduction of sports and advertising sponsorship by these companies. As has already been warned in various media, excessive taxation could lead to the cancellation of sponsorship agreements with sporting events, football clubs and other entertainment-related initiatives.