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Brazil’s online gambling industry may mount a legal challenge to stave off a 50 percent increase in the tax rate applied to sports betting and online casino games that is set to take effect imminently.
Following several days of speculation, Brazil finance minister Fernando Haddad confirmed late Sunday that the government would be raising the tax rate applied to the gross revenue of licensed online betting operators from 12 percent to 18 percent, as part of a series of urgent fiscal measures to supplant its unpopular move to increase other taxes applied to international financial transactions.
Although Brazil’s December 2023 federal law on online betting established a 12 percent tax rate, Haddad noted that the government’s “original proposal” was for an 18 percent tax.
The 18 percent rate was also included in legislation as approved by the lower house of Congress, the Chamber of Deputies, before it was later amended in Brazil’s Senate.
Haddad said the betting tax increase and other fiscal changes will be introduced quickly via a so-called “provisional measure” emergency decree, which is due to be published as soon as it has been reviewed by President Lula da Silva.
The tax increase would then take immediate effect, but it would lapse after 120 days unless the provisional measure is approved by Congress within that period.
The Chamber of Deputies and Senate may also make amendments prior to approving the emergency decree.
Industry groups have expressed hope that federal lawmakers can be convinced to reconsider the betting tax increase during the congressional review process.
However, others believe that it is unlikely since Haddad’s wider set of fiscal initiatives has already been negotiated and agreed upon with the leaders of the two chambers of Congress and with other political leaders.
That means legal challenges could come into play, on the basis that operators took the decision to apply for a five-year licence in Brazil with the understanding that the main tax rate would be set at 12 percent.
In a statement responding to Haddad’s announcement, Brazilian industry association IBJR described the tax increase as “unacceptable” and warned that it “makes the operations of many businesses that trusted and invested in the regulated market unfeasible”.
“Any change in the middle of a contract compromises the economic-financial equilibrium and confidence in the regulatory environment,” warned the group, whose members include Flutter, bet365, Betano and Entain.
“In view of this violation, the industry continues to seek dialogue with the governments and the National Congress and, if necessary, will resort to the courts.”
Another High-Stakes Tax Fight To Come
The sudden tax hike comes less than six months after the launch of a regulated market that has seen some 79 operators pay more than US$5m for a federal licence and invest in meeting a series of challenging compliance requirements that are unique to Brazil.
The increase from 12 to 18 percent tells only half the story of Brazil’s tax regime, with operators required to pay additional federal and local business taxes amounting to 11.25 to 14.25 percent of revenue, depending on where their Brazilian entities are based. Operators are also subject to a monthly regulatory fee and other corporate taxes on profits.
Industry association ANJL stated that the sudden increase would take licensed operators’ overall tax burden above 50 percent.
“If the measure is implemented, the market will face consequences such as the exit of operators, reduced investments, reduction of employment, and the growth of illegal operations,” warned the group, which represents more than two dozen Brazil-facing operators.
The immediate battle over the planned increase is also not the only tax challenge on the policy agenda of Brazil’s nascent industry.
Industry groups were already preparing for a high-stakes lobbying fight over a new selective tax on fixed-odds betting and other supposedly harmful products that was created under a major tax reform law passed in December.
That initial law did not set the rate of the so-called “sin tax” for online betting and will instead be determined by subsequent legislation that Congress must approve before the new tax takes effect in 2027.
The tax-reform law did not establish any range or upper limit for the rate of the selective tax on fixed-odds betting, and the pending increase in the main betting tax from 12 to 18 percent would appear to give the industry even less leeway to absorb a more punitive rate.
One Brazilian executive warned that a higher rate for the selective tax, on top of the increase in the betting tax, could mean “the end of the industry”.
“If this happens, we can expect to see companies returning their licences or operators not renewing their licences in the next cycle,” the executive said.
Senate Commission Concludes Investigation
As previously highlighted by Vixio, rumours of the tax increase emerged within hours of the Senate passing a bill to heavily restrict online gambling advertising in a move that underlined the central role of Congress in setting Brazil’s regulatory agenda.
In yet another legislative development, a special Senate commission (CPI) formed to probe Brazil’s online betting industry concluded its seven-month investigation on Tuesday (June 10) by publishing a 541-page report that calls for a series of additional regulatory reforms.
Among other things, the CPI’s highly critical report proposes new legislation to prohibit online casino games and limit the Brazilian market strictly to sports betting, plus a separate proposal to ban the operation of licensed sites outside the hours of 7pm to 3am.
As an alternative to a full ban on online casino games, the CPI’s report recommends legislation to prohibit autoplay features and limit the duration of games to a minimum of five seconds.
The commission’s report also calls for:
- Law 14.790 to be amended to formally recognise that mitigating public-health impacts is its primary policy objective ahead of any economic interests.
- A ban on any retention bonuses or loyalty programs.
- Heightened enforcement powers for Brazilian authorities to block illegal gambling websites, plus stricter penalties for illicit payments and advertising.
- Criminal indictments for more than a dozen named individuals, including several famous digital influencers, over their alleged fraud in promoting online gambling.
Unlike the pending tax increase, the CPI’s report does not have any immediate effect and whether its recommendations will actually go any further is far from certain.
The CPI adjourned what was supposed to be its final meeting on Tuesday without voting to adopt the report in order for potential additions to be considered, with the commission’s chair saying that another meeting would have to be held either on Thursday or next week.
Even if the CPI’s report is adopted by the full commission, the legislative recommendations would then have to be formally introduced as one or more bills and be approved by the Senate and Chamber of Deputies.
Most industry observers consider that unlikely to happen, with the CPI seemingly having run out of momentum and wider political support over the course of its investigation.
Senate President Davi Alcolumbre is widely reported to have become frustrated by the Senate commission following a lobbying scandal and other headlines generated by its high-profile public hearings.
The Senate leader recently agreed to a limited extension of the CPI’s mandate but has refused to countenance another one beyond the June 14 deadline for the commission to conclude its work.
