The Federal Government’s release of Provisional Measure 1.182/23 has set off alarms in the global igaming industry about the viability of the Brazilian market, which has the potential to become the world’s largest regulated market. The concern isn’t just about the unexpectedly high 18% tax on GGR (gross gaming revenue).
Despite the high percentage, companies in the sector are also worried about the government’s attempt to promote the idea that the 18% tax represents Brazil’s total tax burden and that it will be similar to England’s, a country seen as a benchmark for the industry worldwide.
“This version of events has caused some embarrassment, as many of these companies, some publicly traded, operate in England and know this is not true. The Brazilian tax burden will be at least 350% higher than the English one as presented,” explains Andre Gelfi, president of the Brazilian Institute of Responsible Gaming.
Here are the main points for comparing Brazilian and English regulations:
- Tax on GGR (Gross Gaming Revenue) in Betting Operations: When it comes to the tax on GGR, the numbers are similar, with Brazil’s tax being 20% higher than England’s. However, the UK’s system is completely different from Brazil’s. In the UK, companies can operate outside the country, paying corporate and income taxes in their country of origin. In other words, the 15% tax on GGR in England represents the total revenue the country gets from regular sports betting operations.
In Brazil, companies must establish a legal entity in the country and offer services domestically. Besides the investment in personnel, this means operators will also be subject to Brazilian corporate income taxes like IRPJ and CSLL, and service taxes like PIS, COFINS, and ISS, in addition to specific contributions provided for in the Provisional Measure.
- Licensing Fee – In the UK, an annual online betting license costs R$973 thousand for a company with a GGR of up to R$133.8 million. In contrast, the proposed Brazilian fee is a one-time payment of a staggering R$30 million. Simple math shows this is more than six times the cost of a UK license. The impact is even more significant considering Brazil’s SELIC rate is currently at 13.8%. For smaller companies, the UK’s fees are much lower, starting at R$24 thousand per year. Practically speaking, Brazil’s licensing fee will be R$6 million/year compared to England’s R$1 million. These figures make the Brazilian license one of the most expensive in the world.
While in the UK, VAT (similar to PIS, COFINS, and ISS) is not charged to betting operators, and corporate taxes (IRPJ and CSLL) depend on where the company is established, in Brazil, all these taxes are due and are conveniently being ignored by the Government. This means that, contrary to what has been mistakenly propagated, the tax burden in Brazil will be substantially higher than announced, ranging between 29.3% to 32.3% (depending on the municipality’s ISS). Additionally, a supervision fee must be added, further increasing the difference between the two countries.
- Supervision Fee – For larger operators in Brazil, the supervision fee is nearly R$2 million per month, or R$23 million per year. In the UK, this charge doesn’t exist. These points highlight some of the differences between the tax burdens in Brazil and the UK. In a fair comparison, while the UK taxes 15% of the operator’s GGR, the Brazilian rate would be between 45% and 73%, depending on the operation volume.
Furthermore, it’s important to note that the UK has a mature market with decades of experience. In Brazil, companies will be taking a gamble on the country, as other aspects need to be tested to determine the sector’s sustainability, such as efforts to combat the parallel online and physical markets, the relationship between regulators and operators, advertising rules, and other issues.
When the government takes more than 30% of gross gaming revenue, it sets off a series of unintended consequences. In this situation, only a few global companies, used to operating with small margins in competitive markets, will be willing to test the Brazilian market. Regulatory models worldwide show that Brazil’s approach will have a devastating impact on sports clubs and entities, media groups, digital entrepreneurs, and the government itself.
Fewer companies and lower revenues mean fewer sponsorships and less competition. This reduction impacts advertising revenue at all levels, from major national advertisers to small blogs and social media influencers. With fewer licensed operators able to advertise, revenue will significantly drop, severely limiting the capital flow to soccer clubs through sponsorships and potentially collapsing the entire sports media ecosystem.
The bad news doesn’t stop there. Higher taxes will drive customers to unlicensed sites. The high operational costs will prevent companies in Brazil from offering the same odds that bettors are accustomed to and can find on illegal sites, both in Brazil and abroad.
By encouraging the parallel market, the government undermines its own revenue, loses control over sports integrity, and facilitates money laundering. Additionally, unlike the UK, Brazil will impose a 30% income tax on players’ winnings above R$2,112, withheld at the time of the bet payment. Studies have found that this tax represents, on average, an additional 11% of GGR going to the government.
Both individually and collectively, all IBJR member companies have urged Brazil to speed up its regulatory process. In other words, this group, which represents more than 50 different licenses worldwide, has been asking the government to let them pay taxes in Brazil, just as they do in other countries.
Finally, the Institute reaffirms its full support for a tax structure equivalent to that of the UK. They believe this model is not only the best for the sustainable development of the igaming industry in Brazil but also essential to avoid an immediate disruption in the flow of resources that sustain the country’s sports ecosystem.
*GGR stands for “Gross Gaming Revenue.” The formula is simple: from the total amounts bet, subtract the total amounts paid out in winnings to players. What remains (retained by the operator) is GGR.