LATIN AMERICA
Online gambling taxes in Peru and Ecuador CONFUSING, INCONSISTENT AND UNFAIR: THE TAX REGIMES IN TWO OF LATIN AMERICA’S JURISDICTIONS ARE HOLDING BACK GAMING SAYS CARLOS ALBERTO FONSECA- SARMIENTO
I n recent years, online gambling has expanded greatly in Latin America. Dynamism, technology-dependency, and internationality are relevant factors in this activity. There are more and more countries interested in regulating online gambling in the region citing increased labor supply, decreased negative effects of gambling due to the existence of a competent authority, consumer protection, improved attention to formerly ignored sectors such as public health and sports, etc. However, there is a motivation that will always be in any regulatory model associated with this activity: the creation of new streams of taxation. The model is economically successful when tax revenues are significantly higher than the costs of regulation and it will be legally legitimate when the taxes are required within the limits of the Constitution. These two conditions seem straightforward; however, serious problems have been observed regarding the second point. The technical complexity of the activity and the prejudices of some authorities against the gambling industry – frequently imposing unreasonable restrictions on the constitutional rights of the actors involved (entrepreneurs, workers, and
players) – have generated permanent conflicts requiring the intervention of the courts. In Latin America, we have witnessed numerous constitutional judges try to resolve conflicts between authorities and individuals regarding the taxation of betting games. In several cases the rulings have resulted in the non-application of laws. For example, in 2002, in Peru, the Constitutional Court declared the tax on casino games and slot machines unconstitutional because it had a rate of 20 percent of gross profits and because the amount paid was additional to the income tax that companies are required to pay. Since such payment could not be deducted, the Court deemed that this tax forfeited the invested capital. The causes are familiar: paternalism, cognitive bias, absence of the reasonableness test in drafting the law, lack of knowledge and little deliberation by the legislators, and pressure from the government to demand the highest possible amount and treating the industry as the “goose that lays the golden eggs”. As we will see below, these same problems have been found in the recent creation of taxes on online gambling in Peru and Ecuador. In the case of Peru,
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IMGL MAGAZINE | OCTOBER 2023
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