The Brazilian gambling market has been simmering for several months. However, before it truly becomes a golden opportunity, the Brazilian gambling industry must overcome the challenges brought by complex tax regulations, as emphasized by Carla Dualib, Regional Business Development Manager at SOFTSWISS, in the following text.
Edge Tax Burden
The Brazilian government imposes hefty taxes on gambling operators. Starting with a 12% tax on Gross Gaming Revenue (GGR) is just the beginning. Add corporate income tax (15%), social contributions (9%), and municipal service tax, and the total tax rate can easily exceed 50%.
Don't forget the cost of a five-year gambling license—30 million Brazilian reais (5.9 million USD), which operators must pay to use up to three gambling brands. These fees set significant barriers for businesses hoping to enter the market.
So far, only five operators have applied for Brazilian sports betting and online gambling licenses. Nevertheless, the Bonus and Betting Office (SPA) guarantees that applications submitted before the August 20 deadline will be processed by January 1, 2025—this is the scheduled start date for the legal market.
These taxes are intended to generate income for public funds, but a reasonable balance must be found. Excessive taxation can hinder businesses from investing in Brazil, thereby limiting job creation and economic development. The government faces a delicate challenge of optimizing tax rates to maximize revenue while not hindering economic activity.
Player's Perspective
The tax burden does not stop at operators. Brazilian players also need to pay a 15% tax on their winnings. While this may seem straightforward, it adds extra complexity to the overall gaming experience.
If not clearly stated, this tax could even deter players or push them towards the unregulated black market. Players must understand these impacts, and operators must provide clear and transparent tax obligation information.
"Sin Tax" Dilemma
One of the most confusing aspects of the Brazilian tax system is classifying certain gambling activities as "sinful." A typical example is including fantasy sports in selective taxes (commonly referred to as "sin taxes"). Unlike traditional gambling activities, fantasy sports rely on skill and knowledge, not luck. Labeling it as "sinful" is not only inaccurate but also counterproductive.
Fortunately, Brazil has recently recognized the distinction between skill games and games of chance, aligning its regulations with global best practices. In the latest SPA decree, fantasy games are excluded from the list of virtual fixed-odds betting online gaming activities. This positive development is a step in the right direction for the industry.
A Market Worth the Risk
While high taxes are a significant barrier, it's important to remember that other countries, like the UK, also impose hefty taxes on the gaming industry. Yet, these markets continue to thrive.
The key to success in Brazil lies in understanding the local market, building solid relationships with regulatory bodies, and providing an excellent customer experience. Those who can navigate the complex tax environment and offer compelling products will undoubtedly reap rewards.
Brazil is a high-risk game, but the potential rewards are enormous. Recognizing this, SOFTSWISS is currently getting its casino platform and sports betting certified. Once the government introduces responsible gaming requirements, the company is prepared to adjust its software to meet these requirements. Yes, the challenges are significant, but the opportunities are even brighter.
