Brazilian Sports Betting Sector Faces Potential Tax Hikes
The pressure is mounting on licensed sports betting operators in Brazil as further tax increases may be on the horizon, according to the country’s Vice President.
The Brazilian Executive Branch has officially published a provisional measure that will raise the tax on operators to 18% of the GGR, which is the difference between the total amount wagered and the total paid out in winnings and other taxes.
This tax increase moved closer to reality with the introduction of MP 1.303, which amended Law 13.756/2018, the betting law related to taxation.
Of this 18%, 6% will be allocated to social security and healthcare contributions, while the remaining 12% will be divided among other sectors, such as sports and education.
Although the provisional measure takes effect immediately, the Senate and the Chamber of Deputies must still vote on the tax increase before it becomes permanent.
The Finance Minister, Fernando Haddad, confirmed the government’s intention to amend the country’s gaming laws to increase the tax on GGR from 12% to 18%, a 50% increase.
This announcement confirmed industry fears regarding tax increases, which were triggered by the government’s decision to revoke a decree that would have increased the tax rate on financial operations (IOF) from 0.38% to 3.5%.
To offset the financial impact of revoking the IOF decree, the president of the National Bank for Economic and Social Development, Aloizio Mercadante, advocated for a tax increase on the gambling sector in Brazil.
Illegal Betting Targeted in Law Change
In addition to increasing the tax rate on gross revenue, MP 1.303 also targets illegal gambling, as the black market remains a problem in Brazil.
The government has responded by amending Law 14.790/2023, requiring companies that provide internet connections and applications to maintain a “exclusive, permanent and functional” communication channel with the Prizes and Betting Secretariat, which regulates the matter, to boost cooperation in shutting down illegal websites.
Article 21 of Law 14.790 was also amended to ensure that telecommunications companies implement internal procedures to combat illegal sites. They are now prohibited from working with operators active in the black market.
Other measures include expanding powers to sanction websites and companies linked to illegal betting, as well as match-fixing.
Earlier this year, the co-founder and CEO of the Brazilian Responsible Gaming Institute (IBJR), André Gelfi, estimated that illegal operators still accounted for about 60% of the country’s betting sector, despite the legal market having launched on January 1st.
Sports Betting Sector in Brazil Angered by Tax Increase
The industry’s response to the tax increase has been led by the IBJR, which expressed its “vehement indignation” at the measure.
According to the institute, the legalized market has already paid more than R$ 2.3 billion (US$ 415.3 million) in licensing fees, based on the sector’s planning considering the 12% tax rate on GGR.
The organization believes that any change in the middle of the operators’ five-year license period could compromise the economic and financial balance of the sector.
“The measure is unacceptable and makes it impossible for many companies that trusted and invested in the regulated market to operate, generates legal uncertainty and threatens public revenue,” the IBJR said in a statement published on LinkedIn.
Furthermore, the IBJR expressed concerns about how the new rate could affect the viability of licensed operators, thereby fostering the black market.
“By raising the tax on licensed bets, the illegal market tends to grow from the current 50% to at least 60% (of market share), generating an estimated loss of more than R$ 2 billion per year in revenue.
The way to increase revenue is not to penalize those who operate within the law, but to rigorously combat illegality and protect bettors, following the sector’s regulations.”
Could There Be More Tax Increases on Betting in Brazil?
Despite the industry’s furor, Brazil’s Vice President, Geraldo Alckmin, has suggested that the tax rate could increase even further.
Alckmin stated that the Executive Branch could work with Congress to increase the tax burden on legal operators above the new 18% rate on GGR.
During an event of the Brazilian Association of Supermarkets this week, Alckmin said: “The government’s proposal is to increase it to 18%, but we can work with Congress to be able to take another leap.
We need to increase the tax (on betting). Not just 18%, which is the government’s proposal, but 27%. This will prevent many families from being harmed.”
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