The proposed 15% tax rate on gross gambling revenue in Brazil has raised concerns, with a prominent stakeholder arguing that the actual effective rate could be as high as 26.25% when factoring in additional contributions.
Brazil sports betting tax
On April 12th, the Ministry of Finance in Brazil conducted a public hearing in Brasilia, wherein it announced its intention to implement a 15% tax on the gross gambling revenue generated from sports betting.
During the public meeting, representatives from the Ministry of Finance engaged in discussions with industry stakeholders to deliberate on the proposed contents of the Provisional Measure (PM), which will serve as the framework for Brazil’s upcoming regulatory regime for sports betting.
Neil Montgomery, the founder and managing partner of Brazilian law firm Montgomery & Associados, has revealed that the Provisional Measure (PM) is nearing completion. It is highly anticipated that President Lula will issue the measure upon his return from his ongoing state visit to the People’s Republic of China.
Brazil Proposes 15% Tax on Sports Betting
According to Neil Montgomery, the sports betting tax rate in Brazil is modeled after the United Kingdom. However, there is still uncertainty surrounding whether the proposed 15% tax would be the sole amount expected from operators, as there are concerns that it may be in addition to existing federal social contributions and municipal service tax. This could potentially result in a total aggregate rate of 26.25%, as argued by some stakeholders.
“If it is ultimately confirmed that the proposed tax in Brazil would be in addition to existing federal social contributions and municipal service tax, then it would deviate significantly from the UK model of 15%,” said Montgomery. “This is why the industry has expressed outrage at such an announcement and is actively lobbying for this issue to be corrected in the upcoming legislation.”
The meeting was attended by various organizations that represent the interests of the gaming industry in Brazil. Notably, the main Brazilian football clubs were present, having recently issued a joint declaration urging the ministry to include them in the ongoing discussions.
In addition, several recently formed trade bodies representing Brazilian sportsbooks and foreign operators were also represented at the meeting. The presence of these diverse organizations underscores the widespread interest and active participation of various stakeholders in shaping the regulatory framework for sports betting in Brazil.
Montgomery highlighted that all the stakeholders present at the meeting, including the football clubs and trade bodies, still have the opportunity to influence the Ministry of Finance and other public bodies in shaping the final version of the Provisional Measure to be issued by President Lula. Furthermore, he noted that even after the Provisional Measure is issued and becomes effective upon publication in the Official Gazette, it may still undergo adjustments during the review process in Congress. This indicates that the regulatory framework for sports betting in Brazil is subject to potential changes and further discussions among stakeholders as it progresses through the legislative process.
“All these players can still influence the Ministry of Finance and other public bodies in shaping the Provisional Measure to be issued by President Lula,”.
“It must also be noted that even after being issued, the Provisional Measure – which becomes effective immediately upon publication in the Official Gazette and enjoys the same status of a federal ordinary law – can still suffer adjustments while it is being reviewed by Congress.”
Montgomery explained that Congress will have a 120-day timeframe to convert the Provisional Measure (PM) into federal ordinary law. If Congress fails to do so within this period, the PM will be discarded and not take effect as law. This highlights the importance of timely and efficient legislative action to ensure that the regulatory framework for sports betting in Brazil is properly established within the designated timeframe.
Revival of Scratch Card Lottery
Rumors have emerged that the Provisional Measure (PM) addressing fixed-odds sports betting in Brazil, or a separate PM issued concurrently, may also include provisions for the relaunch of LOTEX, the scratchcard instant lottery that the government attempted to privatize in 2019. According to Montgomery, the lottery faced setbacks the following year when the winning consortium, comprised of IGT and Scientific Games, declined to sign the contract. One of the reasons for this was a 2020 decision by the Supreme Federal Court that broke the Federal Union’s monopoly on the operation of lotteries in Brazil.
Montgomery further speculated that the federal government may plan to allow CAIXA, the Federal Savings Bank that currently operates federal lotteries, to also operate LOTEX, potentially on a temporary basis. These developments suggest ongoing discussions and considerations surrounding the operation and regulation of lotteries in Brazil as part of the broader regulatory framework for gambling and sports betting.
“There is speculation that the federal government plans to let CAIXA, the Federal Savings Bank that currently exploits the federal lotteries, to also operate LOTEX, even if temporarily,”.