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Brazil Betting Tax Rate Much Higher Than UK, Lawyers Warn

April 18, 2023
Brazilian gambling interests are unhappy with the government's proposed tax rates for sports betting, arguing that the UK's headline rate of 15 percent is not a like-for-like comparison due to various other taxes that will also be applied.

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Brazilian gambling interests are unhappy with the government's proposed tax rates for sports betting, arguing that the UK's headline rate of 15 percent is not a like-for-like comparison due to various other taxes that will also be applied.

A gross gaming revenue (GGR) based tax rate for online sports betting of 15 percent was announced last week during a public hearing by special advisor to the Ministry of Finance José Francisco Manssur.

Outlining some details from a forthcoming presidential emergency decree, Manssur said the government's proposed tax system was modelled on the United Kingdom’s rate.

Manssur also said that the Brazilian government of President Lula da Silva wanted a tax rate that would raise revenue for social projects, but not be so high that it would drive players to illegal websites.

However, lawyers caution that, upon closer inspection, the effective tax rate is actually set to be closer to 25 to 29 percent of gross online betting revenue, much higher than the UK.

As gambling law expert Luiz Felipe Maia told VIXIO GamblingCompliance, in addition to betting taxes amounting to 15 percent of GGR, there will also be a local service charge (or ISS tax) of between 2 and 5 percent for Brazilian municipalities.

On top of those taxes, a 9.25 percent of GGR contribution to Brazilian social security is also expected to apply. This puts the effective tax rate at somewhere between 25 and 29 percent, depending on the municipality’s chosen rate and the applicability of certain tax credits that are available for social security.

Thomas Carvalhaes, managing director of Brazil-facing online gambling platform Vai de Bob, called the proposed tax rates out of sync with the actual value of the Brazilian sports-betting market.

“It all started on a positive note, with the government showing a lot of good intentions for the sector; however, it is now beginning to get all tangled up once again, which is a pity,” he said in reaction to the government's tax announcement.

Carvalhaes continued that if the rates proposed are approved, “they will have a deja vu impact in the Brazilian market, where illegal operations will likely find a way to operate in the country, defying the state's ability to impose a precise law enforcement, just like seen in markets such as Mexico and Portugal a few years ago”.

The cities of both Rio de Janeiro and São Paolo have recently set low municipal tax rates for sports-betting companies in an effort to attract operators to headquarter their Brazilian business in their jurisdictions.

In December 2022, São Paulo approved lowering the applicable ISS rate for betting or fantasy sports companies from 5 to 2 percent. Rio de Janeiro will apply the same rate if a pending local bill is approved, as expected.

Rio city councillor Pedro Duarte told a local news outlet a few weeks ago that “according to federal legislation, the company will collect taxes (ISS) for the entire operation in Brazil at its headquarters”, explaining the battle among leading Brazilian cities to attract betting companies.

National and local taxation aside, there is also mounting concern about the 30 percent winnings tax that was set under a 2018 federal sports-betting law and is expected to remain in place, according to Manssur.

According to Maia, “we’re going to have a market where VIP players will not be welcomed” as the 30 percent tax would apply to all winnings above R$2,640 (or roughly US$500).

Maia believes that to keep heavy bettors playing with legal sites, it would make more sense to adopt an approach like in the United States, where players must withhold taxes only when the prize is more than 300 times the betting amount and they pay out over a threshold that ranges from $600 to $5,000 depending on the game.

“They should include some provision like this, just to say okay, if you're if you're actually getting a huge prize, not a huge prize by itself but a huge prize compared to the amount that was bet, then you need to pay taxes. I can make a bet of 1 million and win 1 million and ten dollars as a prize and I will be taxed.”

Regardless of these issues, the Lula government's fiscal plan, which heavily relies on sports betting for revenue, is expected to be sent to Congress as soon as today, according to local outlet Poder 360.

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