Could a 1% consumption tax topple Peru’s betting ambitions?
This feature was updated on 19 December 2024 to reflect recent changes in Peru after the consumption tax was approved on 14 December.
It has been a huge year for gambling in Peru and thanks to recent online regulation, industry commentators foresee it becoming the third largest online betting market in South America. Law No 31557 to regulate online sports betting and igaming in the country came into effect last February, having been signed off by President Pedro Castillo in 2022.
The betting regulator in Peru, the Ministry of Foreign Trade and Tourism (Mincetur), started taking online licence applications in February and the market’s potential encouraged top-tier operators such as Betsson, Rush Street Interactive and Stake to apply. By 21 March 2024, 145 applications had been received.
The regulatory framework set out in Law No 31557 has been described as favourable for operators, not least because it features an acceptable 12% tax on gross gaming revenue (GGR) for them. It also sought to kill a 1% consumption tax on the value of every bet.
The market’s actual launch date is disputed as operators already in the market when the law was enacted were able to continue operating during the licensing period. Gonzalo Perez, CEO of leading Peruvian operator Apuesta Total, says those already in the market had to have their platforms certified to continue trading. Mincetur set a deadline of 15 November for this to happen.
All was seemingly going well in the Peru betting industry and Perez said back in September that he believed the market, as it was, would experience fierce competition between operators. But a previously discussed consumption tax, which would require operators to pay a 1% levy on the value of every bet, quickly dampened interest in the sector.
The proposed levy was reintroduced last September via Legislative Decree 1644, published by the government. On 14 December, a press release from the Peru government confirmed the selective consumption tax (ISC) will come in from January.
According to EY executive director of international tax and transaction services Ramon Bueno-Tizon, the Peruvian Executive expects to collect around Sol 110 million (£22.7 million/€27.4 million/$29.2 million) a year from the consumption tax.
Perez feels a 2024 adoption is unfeasible as operators will need time to tweak their systems and calculate the tax. “I don’t think that’s going to be possible because if we take into consideration how it’s written right now, we have to deduct 1% for every bet,” he says. “[To accommodate this] we’ll have to make some adjustments on our systems and our platforms. We’ll need to recertify our tech and start all the processes again. And we all know that it’s not going to happen fast.”
Spiking the rapid growth of Peru gambling
Perez has two key concerns about the decree. The first, he explains, is the prospect of double taxation on operators. He says the 1% rate on turnover is “crazy” and shows how the Peru government does not understand the betting sector. He believes the tax will ultimately cost companies like Apuesta Total more than the existing 12% GGR tax, in effect doubling the current tax rate.
In a Linkedin post following the government’s confirmation of the tax’s introduction, Perez explained more on how operators may struggle to adapt to the new tax, expecting laboratory recertification to take between eight and 12 months before the tax can be transferred.
“Let’s remember that we are one of the few industries, or perhaps the only one, that operates with a platform certified by a state-approved laboratory and that operating without certification and homologation not only carries fines but can also mean the withdrawal of authorisation,” Perez said.
“Complex weeks are coming for the industry but the technical arguments support us. We expect wisdom on the part of the government so as not to affect the expected collection.”
Potential resurgence of illegal operators
The tax could have a hugely detrimental impact on what has largely been a smooth route to regulated gambling in Peru.
The existing regulatory framework in Peru has been praised as one of the strongest in LatAm, particularly compared to Brazil, which is currently facing strong pushback from governmental entities who are calling for its betting laws to be reviewed and ruled unconstitutional.
Brazil’s legal betting market will launch on 1 January 2025 and could quickly become the biggest legal betting market in South America.
Zoran Milosevic is CEO of MeridianBet, an operator that has been in Peru for about 10 years. For Milosevic, a key factor in the country’s continued success will be the regulator’s ability to stamp out the black market. Perez fears its activity could increase as players and operators alike look to circumvent the new tax.
Nicolás Samohod Rivarola, head of gambling and betting at the Vidal Caceres law firm in Peru, shares Perez’s concerns that the “very unfavourable” consumption tax could drive players and operators away from the legal market.
“It would take the tax impact on [licensed operators] to high and burdensome levels, bordering on unconstitutional. And it would make many [stakeholders] think about evaluating their [presence] in the Peruvian market,” he says.
“What would be worse and more serious is that [operators and players] could then explore unregulated options that are illegal.”
How big will the impact be?
The full impact of the consumption tax remains to be seen, although Perez warns it could be a “nightmare” and lead to Apuesta Total cutting jobs.
On the other hand, MeridianBet’s experiences of tightening regulations in Europe, where many believe it is becoming increasingly difficult to operate as taxes increase, mean Milosevic is less concerned about the situation in Peru.
In fact, Milosevic believes it could ultimately end up being a net positive by cutting some of the competition. He accepts the tax increase and urges Mincetur to effectively clamp down on illegal operators.
“It’s nothing difficult,” Milosevic explains. “It’s nothing we don’t see across Europe. The days of low or medium taxation in gambling are over.
“Our personal analysis tells us that actually we will benefit, because if you paid no tax, you will be competing against 600 companies,” he continues. “We expect 50 companies [to operate once the tax is implemented] so the number of competitors could drop up to 90%.”
Perez is unsure how operators will recover these extra costs and suggests they could pass them on to customers to minimise the impact.
“In theory, a consumption tax has to be paid by the consumers,” he declares. “The thing is that commercially, I don’t know if every operator will pass [the costs] on to the final consumer. I think for at least the first year the tax will have a very big impact on every operator’s numbers.”
What can be done?
Rivarola is calling on the government to alter the framework so that it is easier for operators from abroad to thrive in Peru’s market.
“Tax regulations must definitely be issued to make things easier for non-domiciled foreign companies who do us the honour of coming to invest and start a business in my country,” he notes.
As the tax is a government decision, Mincetur has no jurisdiction over it and cannot influence the legislation.
“They (Mincetur) helped us last week to have a meeting with the economy minister,” Perez says. “They heard us, but they said, ‘OK guys, there’s nothing we can do.’
“They understand the impact of the situation. They understand there might be some people that go to the illegal market, meaning there is less gambling tax for the country.”
Stumbling block or fatal blow?
The truth is even experienced veterans in Peru’s gambling industry such as Perez are uncertain over just how large the impact of the new consumption tax on the market will be.
But considering Peru’s route to regulated gambling has been largely plain sailing, this will serve as a valuable reminder of how precarious betting regulation can be.
The reemergence of unregulated operators remains one of the industry’s biggest fears and, without an effective effort from Mincetur to curb offshore gambling, the tax and its subsequent impact on the black market could well become a key sticking point to the growth of Peru’s market.
The implementation of the tax could prove to be a pivotal moment in whether Peru becomes a top three market in LatAm or risks facing the black-market challenges of so many of its peer nations in the region.