As the Brazilian government considers taxing retrospective gray market gambling activities, the Brazilian gambling industry faces a more complex tax environment and industry uncertainty.
Background on Retrospective Taxation
According to local media Metrópoles, a working group formed by the Brazilian Awards and Betting Secretariat (SPA) and the Federal Revenue Office (RFB) is discussing the possibility of taxing active gambling operators in the gray market retrospectively.
The duration of Brazil's gambling gray market has far exceeded expectations. Since former President Michel Temer signed the first online gambling legislation in December 2018, the related regulations were not officially implemented until 2023. With the full online regulation taking effect on January 1, 2024, the government formed a working group called GTI-Bets, dedicated to ensuring that the gambling industry pays taxes according to the law.
Retrospective Tax Could Bring Significant Revenue to the Treasury
The establishment of the working group has caused concerns among some operators, especially those who invested heavily in branding and markets before the regulations were introduced. Robinson Barreirinhas, Special Secretary of the Russian Federal Gambling Commission, once suggested that the government reclaim taxes due during the gray market period.
According to the latest news from Metrópoles, the retrospective tax is expected to bring up to 12.6 billion Brazilian reais (about 2.3 billion US dollars) in additional revenue to the Brazilian treasury.
Significant Increase in Gambling Industry Tax Burden
Although Brazilian gambling regulation has been implemented for less than a year, there has been a noticeable increase in the industry's tax burden. On June 11, 2024, the government announced a temporary measure to raise the tax rate for gambling operators from 12% to 18%, an increase of 50%.
Previously, the government tried to increase financial transaction taxes to boost fiscal revenue, but abandoned the plan due to political pressure, and subsequently, the gambling industry became a key area to fill the fiscal gap.
This temporary tax rate adjustment takes effect from the date of announcement and still requires final approval by the Senate and the House of Representatives.
Industry Concerns and Risks
The sharp increase in tax burden will lead to a significant rise in operating costs, and many industry insiders warn that an 18% tax rate may make it difficult for licensed operators to continue. Excessive taxation could push gambling funds towards the illegal market.
The Brazilian Responsible Gambling Association points out that the share of the illegal gambling market may increase from about 50% to 60%, exacerbating regulatory challenges.
The Brazilian gambling industry is at a critical period of regulatory transformation, and the implementation of retrospective taxes and continuous tax rate adjustments not only bring fiscal benefits to the government but also put pressure on market order and compliant operations. How future policies balance fiscal needs with the healthy development of the industry will become a focus of attention.
