Brazil’s Congress Examines Increased Gambling Taxes
Brazil is grappling with a proposed 50% tax increase on gambling, setting the rate at 18% of the Gross Gaming Revenue (GGR). In response, the Brazilian Congress has formed a joint committee to analyze the controversial measure and consider alternative approaches.
The committee is tasked with reviewing the provisional measure that raises the tax rate on gambling operators’ GGR from 12% to 18%.
The government initially introduced this measure in June, causing concern within the licensed gambling sector.
Combined with other taxes, such as corporate income tax and social contributions, the overall tax burden on licensed gambling companies could reach approximately 50%. Industry representatives have warned that this level of taxation could render operations unviable.
Following the publication of the provisional measure on June 11th, Congress has a 120-day window to decide whether the tax increase will become permanent.
The joint committee has scheduled four public hearings to discuss the measure and explore different perspectives. The first hearing is set for August 7th, with the final one planned for the end of the month.
Senator Renan Calheiros will chair the committee, with Congressman Carlos Zarattini serving as the rapporteur for the proposal.
Senator Randolfe Rodrigues, the Congressional leader, believes that taxing sectors like gambling could be crucial in reducing social inequalities in Brazil.
“Today, we are one of the 10 largest economies in the world and, at the same time, one of the 10 most unequal countries,” said Rodrigues. “Something is not right about this combination. The government sought, with this provisional measure, to build mechanisms for fiscal justice.”
Congress is expected to vote on the provisional measure by October 9th. The committee’s vote on the matter is scheduled for August 26th.
What’s Included in the Provisional Measure?
Of the new 18% GGR tax rate, which took effect provisionally upon publication of the measure, one-third will be allocated to social security and health contributions, while the remaining two-thirds will be distributed to other areas, including sports and education.
The tax was introduced after the government revised a controversial decree that attempted to increase the tax rate on financial transactions (IOF) from 0.38% to 3.5%.
The IOF was implemented in Brazil as a monetary policy tool to help regulate financial markets. It applies to all foreign transactions, including loans, currency exchange, insurance, and investments, representing a significant source of government tax revenue.
To mitigate the negative repercussions of the IOF increase, the government shifted its focus to sectors like gambling to compensate for a budget shortfall. The IOF increase is still planned, but to a lesser extent than initially proposed.
This move has drawn strong criticism from the country’s licensed gambling industry. The Brazilian Institute of Responsible Gaming (IBJR) warns that the tax increase could increase the share of the illegal market to at least 60%.
“The measure is unacceptable and makes it impossible for many companies that trusted and invested in the regulated market to operate, in addition to generating legal uncertainty and threatening public revenues,” the IBJR stated in June.
Is Gambling Taxed Enough in Brazil?
Other sectors, such as fishing, real estate, and agribusiness, have also been affected by the provisional measure.
In a speech on Tuesday, Senator Izalci Lucas criticized the measure, saying that it unfairly targeted sectors such as agribusiness and construction funds, but did not increase the tax on gambling to a sufficiently high rate.
While industry leaders argue that the rate is unsustainably high, some legislators, like Senator Izalci, believe that gambling is still not taxed enough relative to its social costs.
Furthermore, Izalci criticized the government for not implementing a ban on the use of social assistance funds, such as those from the Bolsa Família program, for gambling.
“This government only thinks about taxes and only thinks about increasing taxes,” said Izalci. “You take the betting industry, which has destroyed Brazil, reduced supermarket consumption, reduced retail consumption.”
“To this day, the government does not have the authority to prohibit people who receive Bolsa Família from gambling in the betting industry. The incompetence of this government is incredible.”
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