The reintroduction of a betting consumption tax looms over Peru, raising concerns that double taxation and a rise in black market activity could dampen growth.
It has been a huge year for gambling in Peru and industry commentators expect, thanks to recent online regulation, that it could become the third largest online betting market in South America. An amended Law No 31557 to regulate online sports betting and igaming in the country came into effect on 9 February, after initially being signed off by President Pedro Castillo in 2022.
The country’s gambling regulator, 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, 145 applications had been received.
The regulatory framework set out in Law No 31557 has been described as favourable for operators as it features a respectable 12% tax on gross gaming revenue (GGR) for operators and it sought to kill a 1% consumption tax on the value of every bet.
The market’s actual launch date is disputed as operators that were 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 tells iGB those already in the market had to have their platforms certified to continue operating. Mincetur set a deadline of 15 November for operators to certify their operations. It will subsequently carry out inspections and administer sanctions to those that aren’t fully compliant, from that date onwards.
Consumption tax reintroduced
All was seemingly going well in Peru’s gambling industry, and Perez said back in September that he believed the market, as it was, would experience fierce competition from 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 on 13 September via Legislative Decree 1644, published by the government. Although no date for the levy’s enactment has been confirmed (at the time of writing), Ramon Bueno-Tizon, executive director of international tax and transaction services at EY, believes it could be before the end of 2024. According to EY, the Peruvian Executive (head of state and directs governmental policies) expects to collect around Sol110 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,” Perez tells iGB. “[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. I think that it might [come into force] at the beginning of next year.”
Fears it could halt the rapid growth of Peru gambling
Perez has two key concerns about Legislative Decree 1644. The first, he explains, is the prospect of double taxation on operators. He says the 1% rate on turnover is “crazy” and shows how Peru’s government does not understand the gambling sector. He believes the tax will ultimately cost companies like Apuesta Total more than the existing 12% GGR tax, more than doubling the current tax rate.
The law’s language is unclear, says Perez, on whether the tax will only apply to foreign companies or international and local operators. “As [the law] is written right now, some people are saying it could only apply to foreign companies. That is a big concern for us and something that has to be fixed,” he insists. “We want to have the same rules as any other company. So, if the foreign companies are going to pay, we also need to pay. That’s one of our principles.”
A 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. Peru’s existing regulatory framework has been praised as one of the strongest in LatAm. Particularly when considering Brazil, which is currently facing strong pushback from governmental entities who are calling for its betting laws to be reviewed and deemed unconstitutional. Brazil’s legal betting market is set to 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 approximately 10 years. For Milosevic, a key factor in Peru’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,” Rivarola 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 end up being a “nightmare” that leads 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 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. We expect 50 companies [to operate once the tax is implemented] so the number of competitors could drop up to 90% percent.”
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,” Perez 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 it’s 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,” Rivarola notes.
As the tax is a government decision, Mincetur has no jurisdiction over it and cannot influence the legislation. For this reason, Perez expects the levy to be enacted eventually.
“They [Mincetur] helped us last week to have a meeting with the economy minister,” Perez says. “They heard us, but they said, ‘okay guys, there’s nothing we can do’.”
Mincetur understands the threat, though, according to Perez.
“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.”
A stumbling block or a fatal blow to some operators?
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 looks inevitable and it 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.
