Brazil’s Gambling Industry Faces New Taxation Challenges
The future of Brazil’s gambling landscape is shrouded in uncertainty, as the government contemplates imposing retrospective taxes on operators who participated in grey market activities prior to regulatory changes.
Reports indicate that the Brazilian government is exploring the feasibility of retroactively taxing betting companies that operated in the grey market during the extensive period leading up to formal regulation. This grey market phase was protracted, commencing with online legislation signed into law by former President Michel Temer in December 2018, and stretching five years until the Chamber of Deputies finally approved the regulatory framework.
With full online regulation officially starting on January 1 of this year, a working group called GTI-Bets was established to ensure compliance among gambling operators concerning their tax obligations. The announcement of this group concerned many operators, particularly those who had invested significantly to position their brands favorably in anticipation of regulation.
According to Robinson Barreirinhas, special secretary of the Federal Revenue Service (RFB), the government aims to collect taxes that should have been paid during the grey market period. Estimates suggest that these retrospective taxes could generate as much as BRL 12.6 billion (approximately $2.3 billion) for the state.
Increased Financial Strain on Operators
Less than eight months into the new regulatory environment, the Brazilian gambling industry could be facing not just retrospective tax liabilities but also new tax rates that significantly increase operating costs.
On June 11, the government enacted a provisional measure that raised the tax rate on operators’ Gross Gaming Revenue (GGR) from 12% to 18%, marking a substantial 50% increase. Earlier efforts to raise funds through an increase in financial transaction taxes were met with political pushback, leading the government to focus on the gambling sector as a solution to its fiscal challenges.
The provisional measure is effective immediately, but requires approval from both the Senate and the Chamber of Deputies to become permanent legislation. This tax hike would elevate the overall tax burden on operators to around 50%, prompting concerns among industry stakeholders who argue that such an excessive rate could drive operators back into the shadows of the black market.
The Brazilian Institute of Responsible Gaming warns that the share of illegal operators could rise from 50% to 60% under these new financial pressures, undermining the integrity of the regulated market. As the gambling sector braces for these changes, the potential ramifications could reshape the industry’s landscape and challenge its ability to thrive in an already complex and evolving environment.