Luiz Carlos Prestes Filho: Should we be structuring specific legislation for gambling in Brazil? Referrals to the National Congress and the Federal Supreme Court (STF) may soon regulate money betting games managed by the private sector. If the activity is allowed, it will be a rush!
Luiz Felipe Maia: We are seeing the debate about gamblin maturing in the three powers. The Legislature has been increasingly receptive to the idea of legalizing gambling activities in the country, having already passed laws that created the Instant Lottery and the Fixed Quota Lottery on LOTEX sporting events. There are also a series of bills on casinos and other forms of gambling. The Judiciary recently expressed its opinion about the end of the federal monopoly on lottery operations, and the trial that is scheduled for April that will decide on the constitutionality or not of the ban on gambling in the country. Finally, the Executive, through SECAP - Secretariat of Evaluation, Planning, Energy and Lottery of the Ministry of Economy, has been working to prepare the regulation of sports betting, as well as to be ready to regulate other modalities that may be approved by the Legislative. However, there is a very peculiar phenomenon here in Brazil.
Both the bills and the eventual decision of the Supreme Federal Court that will rule the ban on gambling in Brazil unconstitutional, as well as the decision that ended the federal monopoly on lotteries, end up generating a much broader impact than the desired for that standard level. We ended up trying to legalize, at the same time and in an often-excessive level of detail, different gambling modes. A virtually impossible task, unprecedented in comparative law. It would be much simpler and more efficient to follow the path taken by most countries: a specialized body is created - a regulatory agency, a commission, a department, whatever it is - which will have the competence to authorize and regulate all the modalities of gambling, from casinos and sports betting to internet games and lotteries, including jogo do bicho. This regulatory entity will then be able to define in a technical manner the criteria for operation, inspection and granting of licenses.
For investments to come from abroad, we have to offer guarantees. Is the country ready? Is there legal certainty?
Legal certainty will come with a well-defined regulatory framework. In other words, with laws that guarantee the basic structure for the performance of a regulatory body and an adequate tax burden. After that, a body of technical and independent regulators is needed, which will be able to create the normative framework of technical regulations necessary for the proper development of each activity. In terms of technical training, we are well prepared. The SECAP team has been studying the gambling topic a lot and today is very capable of starting to regulate the theme in the country.
The Productive Chain of Gambling Economy promotes activities in the areas of architecture and graphic industry, accommodation and restaurants, entertainment, and technological innovation, among others. Does tax legislation accompany these activities? How long will it take to structure tax legislation for the gambling sector?
2020 was a year of very important judicial decisions in tax matters related to gambling, which will certainly guide future tax legislation. On June 6, 2020, the Federal Supreme Court ruled that the municipal services tax (ISS) may apply to betting activities and that the constitutional basis for horse racing is the “Take” value (equivalent to Gross Gaming Revenue, that is, “Bets Received” minus “Generated Prizes”). This is a seminal precedent for future discussions on the basis for calculating the taxes levied on the fixed-quota lottery created by Law 13.756 / 2018, so that it can be argued that the ISS can only be levied on the GGR of sports betting. The same argument can be used to question the constitutionality of the calculation basis for the mandatory transfers defined in article 30 of Law 13.756 / 2018, originally defined as the total bets placed ("the proceeds of the collection").
On June 17, 2020, the judge of the 16th Public Finance Court of São Paulo determined that the service tax (ISS) cannot be charged on the total value of poker tournament buy-ins, but only on the portion of the organizer's remuneration (ie buy-in's less prizes). The Municipality of São Paulo appealed, and the case is awaiting judgment by the Court of Justice of the State of São Paulo. These two precedents demonstrate a strong inclination of the Judiciary to the understanding that the prizes paid should not be counted in the calculation base of the taxes to be collected from the operators. This trend must be accompanied by the tax legislator. As for the time for this to happen, it depends only on the political environment for legalizing gambling activities. The tax issue must, necessarily, accompany the legalization, under penalty of the activities being unfeasible or being at the mercy of bizarre understandings of federal, state and / or municipal tax authorities.
Hasn't the time come to promote a large exclusive corporate and institutional congress on tax policy and gambling?
The idea is excellent. It would be very productive to hold a congress with trained people who could produce a document to be taken to the government and to the national congress, with concrete proposals duly substantiated, including the proposal to create a working group.
Should each modality have its tax structure? How to tax poker, lotteries, casinos, bingos, and jogo do bicho? Should each vertical have a tax structure?
In Brazil, it is not common to give different tax treatment by economic activity. Nor is it necessary in the case of gambling. In an exaggerated simplification, the most relevant points are: (1) Definition of gross game revenue as Bets minus Prizes (This definition has an impact on the PIS and COFINS calculation basis); (2) Definition of the gaming service price as Bets minus Prizes (This definition has an impact on the ISS calculation base); (3) Income Tax Exemption on Prizes for Gamblers (On the other hand, there could be an increase in the CSLL rate). There are alternatives to these suggestions, but there are three issues that need to be addressed in order for Brazilian tax legislation to adapt to the reality of gambling activities.
Would it be interesting to create a National Gaming Agency? Would it be better to leave control at the Ministry of Finance?
An agency would be an excellent solution for creating a regulatory framework for gambling in Brazil, provided that its creation law grants the agency the appropriate powers for that purpose and is limited to giving the mandate for the creation, grant, regulation and inspection of games. The law should not try to go into technical or operational details, otherwise we will be stuck in a reality that will soon be overcome by time. Infralegal rules can and should be changed and updated much more quickly than laws, based on technical and non-political criteria. That is why the importance of an independent regulator and, therefore, I believe that the creation of an agency would undoubtedly be an ideal solution. Leaving the gambling sector under the control of the Ministry of Economy, however, is not bad. The SECAP team has developed, in recent years, a great deal of expertise on the subject and is able to properly regulate the market, as long as there are laws that provide support for this. The issue today is much more political than technical, because within the Executive we already have people with the capacity to do the necessary work.
Does the democratic regime favor the regulation of gambling today? Is there a possibility for transparent business management and competent oversight by government agencies? Winston Churchill already said that "Democracy is the worst form of government imaginable, with the exception of all others that have been tried." Power disputes and political crises certainly hinder attempts to legalize the activity, as they divert energy and take the government and parliamentarians away from the topic. That is the reality and the price of democracy and the cost of the alternative seems to me much higher. I do believe that government agencies have the capacity to carry out competent supervision of gambling activities. Currently, the control of operations is very sophisticated, through systems and algorithms that allow for remarkably high security. We are a world reference in banking and tax inspection technology. We are fully capable of controlling any casino, bingo, lottery, or sports betting operation. It is enough to have a regulated environment, with clear rules, consistent technical standards, and compatible penalties.
Source: Luiz Carlos Prestes Filho – Executive Director of Tribuna da Imprensa Livre newspaper
