Brazil Bettors To Pay Taxes On Every Winning Wager

May 8, 2024
Brazil's tax authority has published a new rule to clarify how a winnings tax for sports betting and online gaming will be applied, and operators are unhappy with the outcome.

Brazil's tax authority has published a new rule to clarify how a winnings tax for sports betting and online gaming will be applied, and operators are unhappy with the outcome.

The Special Secretariat of Federal Revenue, which is within Brazil's Ministry of Finance, published a rule or so-called normative instruction in the government's official gazette on Tuesday (May 7), specifying how a newly created winnings tax of 15 percent for fixed-odds betting will be applied in the country's forthcoming regulated market.

According to the rule, the tax will apply only to winnings over Brazil's R$2,259.20 (US$446) income-tax threshold.

Far less welcome for operators, however, is the application of the 15 percent tax to every single winning bet in the case of sports betting or to the net winnings for each online gaming session. Players will not be able to deduct losing bets or sessions from taxes owed, with the operator responsible for assessing and collecting the winnings taxes.

Under legislation approved by Brazil's Congress last December, the 15 percent tax would have applied to players' annual net winnings above the US$446 limit and the players would have paid the tax themselves, rather than having it withheld by the operator.

When enacting the bill into law, President Luiz Inácio Lula da Silva vetoed this original part of the text and it had been uncertain how exactly the government would apply the 15 percent tax until Tuesday's rule.

There are several issues that make the tax rule problematic, according to Rafael Marchetti Marcondes, legal director for Brazilian betting association IBJR and chief legal officer for fantasy sports operator Rei do Pitaco. 

“[It] prevents bettors from offsetting losses and gains before paying income tax,” Marchetti Marcondes told Vixio GamblingCompliance. “The regulation prohibits the offsetting of not only losses and gains across different operations, but also within the same platform.”

He also called it “concerning” because the winnings tax will lead to players leaving the licensed market to seek more favourable terms on the black market, which will, in turn, reduce “the expected tax revenue, which might not materialise, potentially leading to a deficit in public accounts”.

“The measure is also likely to be challenged in court, as the Brazilian Constitution states that the events triggering tax obligations and their elements can only be defined by ordinary law, while this regulation addresses the subject (indirectly) without proper jurisdiction to do so,” Marchetti Marcondes warned.

Tuesday's regulation may not be the final word on the winnings tax issue, irrespective of any potential legal challenge.

Congress will have a joint session this Thursday to consider presidential vetoes, including President Lula's partial veto of the original Article 31 of Law 14,790. If the veto is overturned in Congress, offsetting of gains and losses will be allowed on a yearly basis and the original language of the law would be applied.

Additional reporting by James Kilsby.

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