A congressional joint committee in Brazil yesterday approved a bill to retrospectively tax licensed betting operators in Brazil, meaning they must pay tax on gambling operations dating back to 2014.
Before the vote took place, a previous preliminary measure to increase gambling tax to 18% of GGR was hastily removed from the bill.
The government expects to raise around BRL5 billion ($560 million) from the retroactive tax programme, the equivalent of three years of revenue if the tax rate were to increase to 18%.
Heading into this week, the regulated betting market in Brazil had been prepared for the worst as PM 1,303, which contained the proposals for the 50% tax rate increase, awaited approval.
But the bill’s rapporteur, Carlos Zarattini, presented last minute amendments to PM 1,303 ahead of the vote, including removing the tax rate increase, which some believe did not have enough support to pass through Congress.
However, Zarattini’s amendments also included the creation of the Special Regime for the Regularisation of Exchange and Tax Assets (RERCT Litígio Zero Bets), which would seek to retrospectively tax operators for their activities prior to regulation on 1 January.
Vote approved by 13 to 12
On Tuesday, the amended PM 1,303 was approved by just a single vote in 25, with the bill now headed to both houses of Congress for a second vote, which is expected on Wednesday.
The approval followed a day of political negotiations, including a meeting with Finance Minister Fernando Haddad.
If the text doesn’t receive approval by the Senate and Chamber of Deputies by the end of Wednesday, the bill will lose its validity.
This means operators would go back to paying the 12% GGR tax rate enforced before the provisional measure was introduced in June.
Alongside the changes to the tax proposal, Zarattini’s amendments also included a clampdown on illegal operators.
Under the amendments, internet service providers will have 48 business hours to suspend content flagged as illegal gambling.
Brazil retrospective gambling tax will be ‘voluntary’
Notably, the bill said the retrospective tax requirement (RERCT Litígio Zero Bets) would apply a 15% tax rate on gambling activities between 2014 and 2024. It would also include a 15% fine.
Brazilian iGaming expert Elvis Lourenço explains to iGB that this means that operators would have to pay 15% income tax on the value of any online gambling assets they owned between 2014 and 31 December 2024, the day before the licensed market was launched.
Lourenço says operators would also be subjected to a fine equal to the tax rate, for operating in the grey market. This would lead to an effective total tax charge of 30%.
However, participation in the scheme is voluntary and licensed operators will have 90 days from the publication of the text to join the programme. This must be done through a voluntary declaration of assets.
“We’ve done everything we can to ensure that the funds from bets, which weren’t paid under the previous administration, now reach the public coffers,” Zarattini said following the vote’s approval.
A working group in August estimated that the retrospective tax scheme could raise up to $2.3 billion for government coffers.
Why would Brazil betting operators join the programme?
The voluntary nature of the retrospective tax programme may raise questions over why licensed operators would choose to join.
Udo Seckelmann, head of gambling & crypto at Brazilian law firm Bichara e Motta Advogados, tells iGB it could offer legal certainty for Brazil betting operators moving forwards, helping them to avoid prolonged tax disputes with the government.
“Voluntary participation might limit future liabilities, demonstrate good faith toward regulators and stabilise relationships with authorities,” Seckelmann tells iGB.
“However, many operators may question why they should pay retroactive taxes at all, since they entered the market under different legal and fiscal rules.”
Lourenço agrees it could offer licensed operators a pathway to legitimising past undeclared assets or profits, although he believes operators who deem retrospective taxes to be unconstitutional could threaten legal challenges rather than joining the programme.
Lourenço warns the proposal is still subject to political negotiations, with the potential for approval or further amendments, as well as the lapsing of the bill altogether.
Do operators win or lose from the amendments?
While the removal of the tax rise is a positive for operators, those companies that operated prior to regulation may feel uneasy about reporting prior undeclared assets.
Seckelmann suggested the proposal could raise concerns among those that entered the market under clearly defined tax expectations, which made no mention of this policy.
“Applying retrospective taxation could undermine legal certainty and investor confidence, discouraging compliance and future investment,” Seckelmann adds.
“A fair and forward-looking approach would be far more beneficial for the development of Brazil’s regulated betting market.”
On the other hand, Lourenço feels the amendments bring “greater clarity and predictability” to the Brazilian market, which is a positive development in terms of regulatory stability.
“For operators that generated profits in the pre-regulation period, it provides a clear voluntary route to settle potential liabilities,” Lourenço says.
“For those that operated at a loss or break-even, there may be little or no taxable base to declare, making the programme less relevant.
“Separately, operators that consider any retroactive taxation unconstitutional retain the option to litigate.”
If PM 1,303 passes, Seckelmann says he hopes the industry will actively participate in public discussions to ensure the measures are fairly implemented.
“If the PM is approved with such proposal, operators should analyse the fiscal impact, engage with industry associations and prepare for regulatory or judicial developments,” Seckelmann declares.
A joint committee in Brazil has approved a bill to retroactively tax operators, although a proposed 50% gambling tax rise has been removed.