VAT on online betting deposits would reduce revenue and encourage illegal market: study

A recent study by the Digital Transformation Observatory of the Universidad del Rosario warns that the National Government's decision to apply a 19% VAT on deposits on online betting platforms could generate negative effects on the regulated market, reduce tax revenue and affect the financing of public health in Colombia.

The analysis indicates that the Government based its estimates on an interpretation that overestimates the sector's figures. According to the decree issued by the Ministry of Finance and Public Credit, online betting is estimated to represent 4.5% of the Gross Domestic Product (GDP), but the study shows that the real impact of the industry is only 0.17% of GDP when considering the net income of operators and not the total volume of bets.

In 2023, the total betting volume, known as turnover, amounted to 45 billion pesos, but this amount does not represent real income for operators, since it is a digital gaming volume that does not directly impact their assets.

The study points out that the correct indicator to measure the economic activity of the sector is the Gross Gaming Revenue (GGR), that is, the net income after the payment of prizes.

In the same period, this value was 2.7 trillion pesos, from which operators paid 420 billion pesos in exploitation rights destined to finance public health.

Furthermore, the report highlights that 65% of deposits made by players, which amounted to 7.5 trillion pesos in 2023, were subsequently withdrawn, reinforcing the idea that these deposits cannot be considered permanent income for operators.

The study warns that the application of VAT on players' deposits would generate adverse effects on the industry, tax collection and market competitiveness. The measure, which seeks to increase tax collection, could be counterproductive by discouraging participation in regulated platforms and encouraging the use of illegal sites, where there are no controls or tax contributions.

If VAT were applied to the 7.5 trillion pesos in deposits, the estimated revenue would be 1.42 trillion pesos, a figure that represents more than 50% of the industry's real net income (GGR), which could make the operation of legal operators unsustainable.

The study also presents international cases that highlight the risks of an excessive tax burden on the online gambling industry. In Germany, the implementation of a tax scheme with a rate of 5.3% on the total volume wagered in 2021 led to a massive migration of users to illegal platforms.

According to a 2022 report by the German Sports Betting Association (DSWV), around 70% of players opted for unregulated sites, which offered better conditions as they were not subject to this tax burden.

As a result, the regulated market shrank, some legal operators left the country and tax revenues were significantly reduced. In addition, high taxation affected investment in technology, innovation and job creation in the formal sector, weakening the competitiveness of the regulated market.

For researchers at the Digital Transformation Observatory of the Universidad del Rosario, the application of this tax burden could encourage the migration of players to unregulated platforms, weakening the formal market and reducing the income that is currently allocated to the health system.

The implementation of this measure could result in a decrease in tax revenue instead of the expected increase, affecting the resources allocated to healthcare in the country.

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*This content was rewritten with the assistance of artificial intelligence, based on information from Felcojuegos, and was reviewed by a journalist and an editor.