Peru’s Betting Industry Faces Uncertainty as Consumption Tax Reintroduction Looms

The Peruvian gambling market, heralded as a rising star in South America following the regulation of online betting earlier this year, now faces significant challenges with the proposed reintroduction of a controversial consumption tax. Industry experts fear the levy could undermine growth, create double taxation, and drive both operators and players toward unregulated markets.

Peru’s gambling sector has undergone substantial changes since the amended Law No 31557 came into effect on February 9, 2023. Initially signed by President Pedro Castillo in 2022, the law established a regulatory framework for online sports betting and iGaming. The country’s gambling regulator, the Ministry of Foreign Trade and Tourism (Mincetur), began accepting license applications in February, attracting global operators such as Betsson, Rush Street Interactive, and Stake. By March 21, 145 applications had been submitted, demonstrating strong interest in the burgeoning market.

The law’s 12% gross gaming revenue (GGR) tax was viewed as favorable by operators, particularly as it eliminated a 1% consumption tax on the value of every bet. However, operators already active in the market were required to certify their platforms to continue operations, with Mincetur setting a compliance deadline of November 15, 2023. Non-compliant operators face inspections and potential sanctions.

Despite the industry’s initial optimism, the reintroduction of the 1% consumption tax via Legislative Decree 1644, published on September 13, quickly dampened the mood. Although the exact date for the tax’s implementation remains unclear, EY executive director Ramon Bueno-Tizon has suggested it could take effect before the end of 2024. The Peruvian government anticipates the tax could generate around Sol110 million (£22.7 million/€27.4 million/$29.2 million) annually.

Gonzalo Perez, CEO of leading Peruvian operator Apuesta Total, argues that the tax’s structure would place an undue burden on operators. “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 said. He explained that operators would need to adjust their systems, recertify technology, and reinitiate regulatory processes, all of which would take considerable time. Perez believes the tax might not be feasible until early 2025.

Perez’s primary concern is the prospect of double taxation, which he calls “crazy.” He contends that the additional 1% levy on turnover could cost operators more than the existing 12% GGR tax, effectively doubling the tax burden. Additionally, ambiguity in the law raises questions about whether the tax would apply solely to foreign companies or to both international and domestic operators. “As [the law] is written right now, some people are saying it could only apply to foreign companies,” Perez said. “That is a big concern for us and something that has to be fixed. We want to have the same rules as any other company.”

Critics also worry that the consumption tax could reverse Peru’s progress in curbing unregulated gambling. Peru’s regulatory framework has been lauded as one of the strongest in Latin America, especially compared to Brazil, where legal betting is set to launch in 2025 amid constitutional challenges. Zoran Milosevic, CEO of Meridianbet, which has operated in Peru for a decade, emphasized the importance of stamping out the black market.

“[Mincetur] 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,” Perez said.

Legal experts share these concerns. Nicolás Samohod Rivarola, head of gambling and betting at Vidal Caceres law firm, described the consumption tax as “very unfavorable” and warned it could force both operators and players to explore unregulated options. “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 said.

However, Milosevic offered a different perspective, suggesting the tax could ultimately benefit licensed operators by reducing competition. “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%.”

While some operators may pass on the added costs to consumers, Perez cautioned that the tax could still have a significant financial impact on the industry, particularly in its first year. “In theory, a consumption tax has to be paid by the consumers,” he said. “The thing is that commercially, I don’t know if every operator will pass [the costs] on to the final consumer.”

Calls for adjustments to the tax framework are growing. Rivarola urged the government to make regulations more accommodating for foreign operators, stating, “Tax regulations must definitely be issued to make things easier for non-domiciled foreign companies who do us the honor of coming to invest and start a business in my country.”

Despite discussions with Peru’s Ministry of Economy, Perez remains resigned to the tax’s eventual implementation. “They heard us, but they said, ‘okay guys, there’s nothing we can do,’” he said.

As the consumption tax looms, the potential for a resurgence in illegal operators and the resulting challenges to the market’s growth could prove pivotal. For now, Peru’s path to becoming a leading gambling market in South America hangs in the balance.

By fLEXI tEAM