Taxing sports betting in Ecuador: President Lasso’s proposal to boost revenue
President Guillermo Lasso has proposed a tax reform aimed at reviving Ecuador’s economy and increasing tax income. The carefully developed proposal includes a special “point-of-charge” tax designed specifically to collect revenue from the thriving sports betting industry. The recommendations are part of a critical initiative that will be presented to Ecuador’s National Congress. However, despite its good intentions, the initiative raises concerns about its possible influence on tax income. At the moment online sports betting in Ecuador is at an all-time high, but the proposed changes may reduce its revenue, with undesirable ripple consequences.
The point of charge tax
Lasso’s plan aims to modernize the existing tax structure by creating a new approach for the country to tax digital transactions in the gambling sector. The planned tax channels are aimed at both domestic and international sports betting operators. In the new approach, it will not matter whether or not a person is a citizen of the country. The first suggestion is to levy a 15 per cent tax on all sports betting companies. The tax’s incidence and impact will be on the prize money they receive. Individuals who participate in online sports betting through non-resident sites will additionally face a 15 per cent tax on the amount wagered. This tax will be applied at the point of transaction. The proposal also suggests putting a 15 per cent withholding tax on gamblers’ winnings.
The anticipated impact of tax reforms
Sports betting platforms have recently proliferated in Ecuador. Despite their large operations in the country, most of them do not have local representation. The president highlights a recent finding by Ecuador’s Internal Revenue Service (SRI), which discovered over 23 operable sports betting and forecasting websites. Online gaming establishments are also classified as being within the purview of the SRI for VAT collection. The three proposed levies demonstrate Ecuador’s seriousness in ensuring that all stakeholders in sports betting follow the established tax standards.
Given the magnitude of the country’s online sports betting market, Lasso believes the levies will have a substantial impact on the country’s economy. Many Ecuadorians gamble on sports like soccer, basketball, tennis, cycling, and the popular Ecua-volley. In this regard, the revised taxation system will presumably provide relief to approximately 340,000 income taxpayers. Part of the program calls for tax relief for Ecuadorians. It proposes that individuals can deduct up to the $15,000 annually from their personal expenditures, depending on the number of dependents they support. The deduction will drastically lower the amount of income tax they must pay to the Ecuadorian government.
Approval process for the tax reform
Lasso’s idea comes at a time when the country is in a deep political crisis. The president is facing a political lawsuit over claims of embezzlement in the oil transportation business. Opponents accuse him of turning a blind eye to the embezzlement scandal, while conservatives feel his accusers are politically motivated, citing a lack of proof in the case. The president rejected the accusations, and after a vote that could have forced him out of office, he resolved to disband the National Assembly. The Ecuadorian Constitution gives Congress up to 30 days after Lasso’s proposal is tabled in the House to consider it. The Ecuadorian constitutional court has already accepted the president’s proposal on sports betting taxation.
Potential implications
The new levy on sports betting operators and participants is set to go into effect in January 2024. Meanwhile, until the end of 2023, the president is anticipated to provide orders on how the related taxes will be collected. As intended, the new laws will most likely help the country. However, the court’s permission has confirmed that Ecuador’s sports betting market would face some apparent hurdles. The new taxing structure is predicted to result in a considerable drop in tax revenue, amounting to around $195 million. Ecuador’s sports betting business is entirely online. Gambling has been outlawed in the country since 2011, yet internet platforms exploit obvious legal loopholes. Local and international online gambling platforms are responsible for collecting and remitting all gambling taxes. Increasing the government’s cut may suffocate an already struggling sector.
Final thoughts
President Guillermo Lasso’s proposed tax reform to boost revenue in Ecuador raises both hopes and concerns for the country’s economy. The introduction of a special “point-of-charge” tax targeting the thriving sports betting industry seeks to modernize the tax structure and increase tax income. While the new levies are expected to have a substantial impact on the economy and provide tax relief for many individuals, there are concerns about the potential negative implications for the online sports betting market. The proposed tax reform is now in the hands of the National Congress, and its approval process will determine its future impact on Ecuador’s economy and sports betting landscape.