Brazil tax rise inches closer, vice president warns of even higher increase

The Brazil government has officially published the provisional measure that will raise the tax on operators to 18% of GGR.

The tax rise edged closer on Wednesday in the form of PM No 1,303, which amended Law No 13,756/2018, the betting law which relates to tax.

Of that 18%, 6% will be allocated to social security and health contributions, while the other 12% will be split among other sectors, such as sports and education.

While the provisional measure comes into effect immediately, the Senate and Chamber of Deputies must still vote on the tax rise before it is made permanent.

On Sunday, Minister of Finance Fernando Haddad confirmed the government’s intention to amend the nation’s gambling laws to increase the tax on GGR from 12% to 18%, a 50% hike.

The announcement confirmed the industry’s fear of raised taxes, which had been sparked by the government’s decision to revoke a decree that would raise the rate of financial transaction tax (IOF) from 0.38% to 3.5%.

To offset the financial impact of eliminating the IOF decree, National Bank for Economic and Social Development President Aloizio Mercadante advocated for a tax hike on Brazil’s gambling sector.

Illegal gambling also in law change

As well as increasing the GGR tax rate, PM No 1,303 also targets illegal gambling, with the black market continuing to be an issue in Brazil.

In response, the government has amended betting Law No 14,790/2023 to mandate companies providing internet connections and applications to maintain an “exclusive, permanent and functional” communication channel with the regulating Secretariat of Prizes and Bets to boost cooperation in closing down illegal sites.

Article 21 of Law No 14,790 has also been amended to ensure telecommunication companies implement internal procedures to counter illegal sites. They have now been banned from working with black market operators.

Other measures include expanded powers to sanction sites and companies linked to illegal betting, as well as match-fixing.

Earlier this year, Brazilian Institute of Responsible Gaming (IBJR) cofounder and CEO André Gelfi estimated illegal operators still accounted for around 60% of Brazil’s betting sector, despite the legal market launching on 1 January.

Brazil gambling industry left fuming by tax rise

The industry response to the tax hike has been spearheaded by the IBJR, which has expressed its “vehement indignation” of the measure.

According to the IBJR, the legal market has already paid over BRL2.3 billion ($415.3 million) in licence fees, with the sector’s planning based on the previous GGR tax rate of 12%.

The body believes any changes in the middle of onshore operators’ five-year licence period could compromise the economical and financial balance of the sector.

“The measure is unacceptable and makes it impossible for many companies that trusted and invested in the regulated market to operate, generates legal uncertainty and threatens public revenue,” the IBJR said on LinkedIn.

Additionally, the IBJR raised concerns over how the new tax rate could impact the viability of licensed operators, thus fostering the black market.

“By raising the tax on [licensed] bets, the illegal market [will likely] grow from the current 50% to at least 60% [of total market share], generating an estimated loss of more than BRL2 billion per year in revenue,” the statement continued.

“The way to increase collection is not to penalise those who operate within the law, but to rigorously combat illegality and protect bettors by following the regulation of the sector.”

Could there be further gambling tax increases in Brazil?

Despite the industry furore, Brazil’s Vice President Geraldo Alckmin has suggested the tax rate on gambling could yet be increased further.

According to CNN Brasil, Alckmin stated the government could look to work with the Congress to raise the tax burden on legal operators above the new 18% rate on GGR.

During a Brazilian Association of Supermarkets event this week, Alckmin said: “The government’s proposal is to increase it to 18%, but we can work with Congress to be able to take another leap.

“We need to increase the tax [on bets]. Not just 18%, which is the government’s proposal, but 27%. This will prevent many families from being harmed.”