Brazilian Stakeholders Voice Concerns Over Potential Tax Hikes in Betting Sector
Stakeholders in Brazil are expressing concerns about potentially high tax demands on the betting sector, including the possibility of players having to pay back taxes on bets placed in the unregulated market.
Amidst the excitement surrounding Brazil’s newly regulated betting market, the industry is worried that operators will face substantial taxes in the first year of legal online gambling.
The licensed betting market in Brazil launched on January 1st, featuring a 12% tax rate on gross gaming revenue (GGR) for operators, as well as a 15% tax on player winnings exceeding R$ 2,824.
Furthermore, fixed-odds betting has been included in Brazil’s recent tax reform, with the sector now anticipating a consumption tax, dubbed by some as a “sin tax,” starting in 2026.
Currently, fourteen operators possess full licenses, including the local company Rei do Pitaco, which shifted its focus from fantasy sports to fixed-odds betting before the market launch.
Rafael Marchetti Marcondes, Legal Director at Rei do Pitaco, cautioned that the impact of high taxes could stifle the growth of many operators.
Marcondes drew upon his experiences of over 20 years in the tax sector before joining the betting industry.
“When we talk about taxes, it’s always something that worries operators and everyone who does business in Brazil, because we tend to have very high taxes, and a prohibitive tax can be complicated to develop the business in a healthy way locally,” he said.
“The Brazilian Federal Revenue Service is quite aggressive, so even when it doesn’t have solid [legal] bases, it tries to increase the amount of money it intends to bring to the government.”
Fears of Back Taxes on Bets in Brazil
Earlier this month, Brazil’s gambling regulator, the Secretariat of Prizes and Bets (SPA), announced a partnership with the Federal Revenue Service (RFB) to form a task force aimed at ensuring the sector complies with the tax requirements outlined in last year’s regulations.
Five years elapsed between the National Congress first approving online betting legislation in November 2018 and the Chamber of Deputies finally giving the green light. Brazil witnessed a proliferation of betting sites during this period. Some claim Brazil has the greatest access to betting sites in the world.
With so many companies operating during this delay without paying taxes, the launch of the task force has sparked industry concerns about the possibility of back taxes being applied, as the government seeks to recover lost revenue during these five years.
In November, the SPA published an ordinance establishing the process for migrating data and funds to the regulated market, an ordinance that Luiz Felipe Maia, founding partner of the Brazilian law firm Maia Yoshiyasu Advogados, strongly opposed.
“The reason I was so strongly against it was because it creates evidence of an ongoing operation,” said Felipe Maia. “Basically, you are transferring the clientele, the funds, the brand. And in Brazil, one of the legal consequences is succession in all liabilities, including tax liabilities.”
“A Lot of Noise”
Felipe Maia explains that while overseas operators were not subject to corporate taxation in Brazil, players were responsible for income tax on winnings, and therefore the government could attempt to collect back taxes from players.
This responsibility could be transferred to operators, something Felipe Maia explained is not permitted by the Brazilian constitution.
“There is no legal basis for this,” continued Felipe Maia. “This would be clearly unconstitutional, but it wouldn’t be the first time we’ve seen unconstitutional tax obligations or tax laws being created.
“Of course, it would be up to the courts to decide on the unconstitutionality, but if they decide to go after the players, they can request from the operators the list of all the prizes paid in the last five years. And that can generate a lot of noise and a lot of problems for the industry.”
Rei do Pitaco Not Affected by Back Taxes
Rei do Pitaco, however, would not be affected by back taxes due to its decision to only operate fantasy sports before full regulation on January 1st.
Marchetti Marcondes expects other operators who did not follow Rei do Pitaco’s path to face challenges.
“Here at Rei do Pitaco, we decided not to go abroad and only work in the daily fantasy industry without expanding our activity to the betting market, because we have a very conservative board that favors not taking that risk,” explained Marchetti Marcondes.
“I believe it’s a great opportunity for lawyers, [but] for the industry, there may be difficult times, because everyone will be in a new regulated market with several challenges.”
The rate for the proposed consumption tax on fixed-odds betting has not yet been set, and Marchetti Marcondes fears that if it is too high, it could harm the sector, as it has in other places, particularly in Europe.
“In my opinion, this should also be a concern of the federal government, because international experience shows that when taxes are too high, they push people into the black market,” added Marchetti Marcondes. “So, in the end, this harms not only the industry but also the government and even devalues the official licenses.
“We have seen this happen in places like France and Portugal, and it is something that we, as an industry, are watching closely.”
Are Ongoing Legal Battles Helping the Betting Industry in Brazil?
In the second half of 2024, the betting sector in Brazil was impacted by a series of court hearings, including a hearing in the Supreme Federal Court (STF) to decide whether the country’s betting laws are unconstitutional.
The conclusion of this case is expected in the first half of 2025, although Felipe Maia feels it is “unlikely” that the STF will rule against the current betting regulations in place.
Additionally, the federal government has been engaged in a legal battle with the State Lottery of Rio de Janeiro (Loterj) over the regulator’s belief that its licensees should be able to operate nationwide.
Earlier this month, STF Minister André Mendonça approved a preliminary decision prohibiting national activities of brands licensed by Loterj, and Felipe Maia believes that the recognition of the decision of the validity of federal betting laws was a positive sign.
Marchetti Marcondes agreed, saying: “I think this type of discussion is somehow helping to accelerate the maturity of the Brazilian market, and that is a very good thing.
“But regardless of how the courts decide, the process is bringing the necessary clarity for foreign investors and local entrepreneurs to better define their business plans and strategies.”
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