Over a month has passed since bets in Peru became subject to a 1% consumption tax. A local legal expert is warning that, unless it is repealed, the very viability of the licensed market could be at stake.
Peru’s nascent licensed gambling sector was thrown into stormy waters last year, when a 1% selective consumption tax (ISC) on the value of every bet was reintroduced. It had originally been scrapped from proposed legislation in July 2021.
The consumption tax was approved in mid-December, with the Peru government confirming it would come in from January. The initial tax rate would be 0.3% of every bet, before the full 1% rate kicked in from 1 July onwards.
Nicolás Samohod Rivarola, founding partner of local law firm Samohod Lawyers, warns the impact of the current consumption tax on the regulated market will be “catastrophic”.
“We are talking about the future, about the very permanence of the activity in the market,” Rivarola tells iGB.
“That is how apocalyptic the impact of the ISC would be on the Peruvian market if it remains as it is currently.”
Operators forced into lose-lose position
Gonzalo Perez, CEO of the market-leading operator Apuesta Total, previously told iGB the consumption tax, alongside the existing 12% tax on GGR, would lead to the tax burden on operators doubling.
In neighbouring Colombia, operators have looked to offset the effects of a new temporary 19% value-added tax (VAT) by giving players bonuses. However, this has heavily impacted profitability in the market, leading Codere Online to reduce operations there “to the bare minimum”.
The situation is similar in Peru, with operators sitting between a rock and a hard place. The question is whether they should risk their profitability to try and maintain market share by absorbing the tax’s impact themselves.
When asked what operators are concerned about with regards to the tax, Rivarola says bet amounts for players will decrease once the tax costs are passed on to them.
“The portfolio of customers to whom the tax is transferred will see the initial amount of their bet decrease, a fact that is unacceptable for the player. [It creates] a situation in which the temptation for the end consumer to direct their gaze to unregulated gambling scenarios is very risky and highly contingent,” Rivarola warns.
“On the other hand, if the operator directly assumes the burden and impact of the ISC, the margin of the business will be so small that investment will be discouraged as well as the economic-financial planning of any business model.”
Is the consumption tax in Peru unconstitutional?
Ultimately, the additional consumption tax could harm the government’s revenue collection aims. Rivarola says there will only be one winner – the illegal market.
“There is no other way or alternative to save our market than to repeal this disastrous tax.”
One way out for the licensed Peru market could lie in the tax being deemed unconstitutional. Rivarola is unsure whether the current structure of the tax is compatible with the sector in the long-term.
“In my opinion, the ISC for sports betting and/or remote gaming in Peru, as structured by the Congress of the Republic and by the Ministry of Economy and Finance, constitutes an unconstitutional tax because it is anti-technical and confiscatory,” Rivarola explains.
If the government does persist with the tax, Rivarola says it must at least assess the consumption tax’s impact on operator net win or GGR.
Dent in Peru’s gambling ambitions
Much of the frustration around this new tax relates to operators being largely happy with the market before this policy emerged.
With its regulation coming into effect last year, Peru is considered to have a very strong framework in comparison to some neighbouring LatAm markets.
The market was expected by many to become a podium player in the region. However, that optimism has been thrown into doubt by this unsettling tax measure.
Rivarola warns it could “destroy” the decades-long work and efforts to arrive at a regulated online market in 2024.
Rivarola puts the blame for the tax firmly on the government, praising the regulator – the Ministry of Foreign Trade and Tourism (Mincetur) – for its lengthy work in developing and establishing the market.
“We have one of the best regulatory authorities in the world,” Rivarola adds.
In his view, the licensed sector must continue to “fight to survive, to protect its investments and companies, to preserve the jobs of its thousands of workers”.
“The operators are heroic businessmen (national and foreign), who seek to make formal companies despite obstacles and adversities, who know how to work in a highly regulated and supervised market like this,” Rivarola concludes.
“Please do not abuse them, do not destroy their investments, do not leave their workers on the street without formal employment.”
Industry stakeholders fear the decades of work put in to Peru’s regulated online market could be dashed by the new consumption tax.