Brazil Lawmakers Propose New 'Sin Tax' On Gambling

July 9, 2024
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A congressional working group to implement a major Brazilian tax reform bill has proposed that all fixed-odd betting, sweepstakes, games of chance and fantasy sports should be subject to a so-called "sin" tax.
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A congressional working group to implement a major Brazilian tax reform bill has proposed that all fixed-odd betting, sweepstakes, games of chance and fantasy sports should be subject to a so-called "sin" tax.

The move by the Chamber of Deputies working group is not final as the bill, which would implement a broader tax-reform plan approved by lawmakers late last year, still has to make its way through the congressional system.

Officially known as the Selective Tax, the new tax is being nicknamed the "sin tax" by Brazilian media as it will be applied to goods and activities deemed damaging to public health and the environment.

That includes sugary drinks, cars, cigarettes and alcohol, among others. 

“Everything that is a form of gaming will have a Selective Tax. It is harmful to health. Of course, this will be discussed with Congress, but the understanding of the working group is that games of chance should pay a Selective Tax,” said Deputy Moses Rodrigues, one of seven members of the working group charged with developing a specific legislative proposal on the tax-reform plan on behalf of the lower house of Congress.

The sin tax will be applied in addition to two other new service taxes — the Goods and Services Tax (IBS) and the Goods and Services Contribution (CBS) — that are also being established under the tax-reform initiative.

Those two new taxes would replace various current federal taxes, including PIS and COFINS, as well as a municipal services tax that will be applied to the revenue of regulated operators in Brazil once they become licensed.

Currently those service taxes amount to an estimated 11.25 percent of gross gaming revenue (GGR), depending on the location of the operator within Brazil. A specific tax of 12 percent of GGR has also been established for fixed-odds betting operations.

The new CBS and IBS taxes would be phased in during a transition period between 2026 and 2033.

According to Article 227 of Bill 68/2024 to implement the tax reform plan: “The basis for calculating the IBS and CBS on forecasting competitions is the own revenue of the entity that promotes this activity, corresponding to the proceeds of the collection, with the deduction of paid prizes; and mandatory allocations by law to a public body or fund and to other beneficiaries.”

According to a note from Martinelli Advogados: “While specific rates are not defined within PL 68/2024, the federal government projects preliminary estimates. The proposed rates are 8.8 percent for CBS and 17.7 percent for IBS, totaling 26.5 percent.”

The precise rate of the Selective Tax, or sin tax, that would also be applied to gambling based on the recommended text of the congressional working group has yet to be defined. 

However, citing the existing tax burden on operators, industry groups are advocating that the sin tax should not be applied to regulated gambling operators at all.

In a statement issued before the Chamber of Deputies working group report on the tax reform bill, Brazilian gambling industry association ANJL warned that the creation of the IBS and CBS tax rates would already establish an overall effective rate of around 32 percent, or “one of the highest in the world”.

“Under this scenario, the application of a 'sin tax', under the argument that it addresses an activity that is harmful to society will have the opposite effect of what is desired: the abstention of companies that would generate taxes in Brazil and the advancement of websites in complete illegality,” ANJL stated.

The proposed tax comes in the middle of Brazil’s tight 90-day application window for licences for sports betting and online gambling. Operators who apply before August 20 will receive an answer within 180 days of the licensing ordinance’s enactment. Operators who submit after the 90-day window could have to wait 150 days for an answer.

The working group's proposal is subject to approval by the full Chamber of Deputies and then Senate, with a vote in the lower chamber possible as soon as later this week, according to Speaker Arthur Lira.

Additional reporting by James Kilsby.

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