Brazil Senate Report Questions Tax Forecasts For Sports-Betting Market

March 22, 2023
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A study published by the Brazilian Senate has expressed misgivings about regulation of the country’s sports-betting market, particularly on taxation, warning that there is no good estimate of the yearly revenue of a fully functioning legal market.

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A study published by the Brazilian Senate has expressed misgivings about regulation of the country’s sports-betting market, particularly on taxation, warning that there is no good estimate of the yearly revenue of a fully functioning legal market.

The Senate's Center for Legislative Research and Consulting Studies final report on policy matters related to sports betting examines the challenges of regulation and the cost it may have on society.

Of central concern is the lack of a clear forecast on the size of the market, a topic that has been making headlines in the industry amid consistent reports that the Brazilian government will set the upfront cost of a sports-betting licence at R$30m (US$5.6m).

That figure has allegedly, according to local media, been based on estimates that a fully functional legal sports-betting market in Brazil would generate revenue of US$7bn a year, making the country's market the largest in the world.

The Senate legislative center’s report calls forecasts “as varied as they are huge, and there is no official estimate. Most of the estimates are presented by bookmakers without detailing sources and methodology.

“The correct measurement of the impact resulting from the regulation of this market still depends on several variables, such as the form of taxation of betting shops and the volume of bettors that will be attracted.”

The Senate's report suggests that even a lower fee of R$22.2m, as suggested in a draft decree last year, would constitute a barrier to entry for many operators as it would be higher than those of most US states.

The report also notes that officials will have to consider other policy matters such as whether to put curbs or even ban advertising and sponsorship, and whether or not to allow bonuses, the use of credit cards and the broadcast of live odds during sporting events.

“It's quite hard to have a precise estimate of this market,” Fernando Gonçalves, a Brazilian lawyer and founder of FGo Legal, told VIXIO GamblingCompliance, noting that as currently the market operates offshore, there are no legal limitations or tax and advertising deterrents in place.

“The government, in my opinion, is trying to put the carriage before the horse,” said Gonçalves of the Ministry of Finance’s ongoing, behind-the-scenes efforts to arrive at a tax rate that will be appealing to most involved parties.

“Because you have to understand the regulation process, licensing and you have to establish advertisement rules … and then with the understanding of the structure define the way that they want to tax.”

Regardless, both carriage and horse are coming, and soon, with reports that a presidential decree to regulate the fixed-odds sports-betting market is expected to be published during the first week of April.

After that, additional decrees will be promulgated, insiders say, on a topic-by-topic basis, to make sure regulation is comprehensive.

However, another complication is potential competition from Brazilian states.

Paraíba, home to nearly 4m people in the northeast of Brazil, last week published a decree announcing that it would be regulating its own sports-betting market, and opening its own bidding process to award licences to private companies.

States in Brazil are legally granted the right since 2020 to conduct their own lotteries, while fixed-odds sports betting was formally recognised as an approved form of lottery in Brazil by Federal Law 13756/2018.

Fixed-odds sports betting offered by a state would be constitutional under that umbrella, said Luiz Felipe Maia, a gambling lawyer at Maia Yoshiyasu in São Paulo.

But Gonçalves is less certain of individual states trying to regulate sports betting themselves rather than waiting for the federal presidential decree at a national level.

“In Brazil, they have the possibility to regulate state lotteries, for example, public lotteries are part of their competence, but it seems that they are going too far and saying that authorisation allows them to entertain private companies exploring activities in that state.

“As a lawyer, and as a citizen, I really don't believe that initiatives like Paraíba's law will be the right way to regulate."

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