IBJR: Tax burden on sports betting in Brazil will be at least 350% higher than in UK

The publication of Provisional Measure (PM)1,182/23 by the Federal Government raised the alarm in the global iGaming industry about the viability of the Brazilian market, with the potential to be the largest regulated market on the planet. And the reason was not just the 18% tax on GGR (gross profit), which came in higher than expected.

Despite the high percentage, what also concerns companies in the sector is the government's attempt to promote the narrative that 18% represents the total Brazilian tax burden and that it will be similar to that of England, a country considered a reference for the sector around the world. "This version of the facts generated a certain embarrassment, since many of these companies, some of which are publicly traded, operate in England and know that this is not true. The Brazilian tax burden will be at least 350% higher than the English one in the way it was presented," clarifies Andre Gelfi, president of the Brazilian Institute of Responsible Gambling.

Below are the main points for the comparison between the Brazilian regulation and the English one:

1. Tax on GGR*(GROSS REVENUE) in betting operations - In this sense, the numbers are similar, with the Brazilian tax being 20% higher than the English one. But the UK system is completely different from Brazil. There, companies can operate outside the country, paying corporate and income tax in their home country. That is, the 15% on the GGR in England represents the total revenue that the country obtains from normal sports betting operations. In the Brazilian model, companies must establish a legal entity in the country and offer services in the national territory. In addition to the investment in personnel, this means that operators will also be subject to Brazilian corporate income taxes, such as IRPJ and CSLL, and taxes on services such as PIS, COFINS and ISS, in addition to the specific contributions provided for in the Provisional Measure. While in the UK the betting operator is not charged VAT (similar to PIS, COFINS and ISS), 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 - contrary to what has been erroneously propagated - that in Brazil the tax burden will be substantially higher than announced, between 29.3% and 32.3% (depending on the municipality's ISS). To this value, an inspection fee must be added, further increasing the difference between the two countries.
    
2. Licensing Fee - In the UK, an annual license to operate online betting is R$ 973,000 (US$ 205,000) for a company with a GGR of up to R$ 133.8 million (US$ 28.3m). The proposed Brazilian rate will be a cash payment of a staggering R$30 million (US$ 6.35m). Simple math shows that this is more than 6 times the cost of a Brazilian license. The impact becomes even more damaging when one considers that the SELIC in Brazil is currently at 13.8%. For smaller companies, UK fees are also considerably lower, starting at £24,000 per year. That is, in practical terms, it is easy to say that the licensing fee in Brazil will be R$6 million/year against R$1 million in England. These numbers also make the Brazilian license one of the most expensive in the world.
    
3. Inspection Fee - For operators with the highest volume in Brazil, the supervision fee is close to R$2 million (US$ 425,000)/month, that is, R$23 million (US$ 4.85m)/year. In the UK, this charge does not exist.

These three points show part of the difference between the tax burdens of Brazil and the United Kingdom. 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 volume of the operation).

In addition, it is imperative to inform that the United Kingdom already has a mature market, with decades of existence. In Brazil, all companies will literally be betting on the country, as it is also necessary to test other aspects that will define the sector's sustainability, such as commitment to combating the online and physical parallel market, relationship between regulator and operators, advertising rules, among others themes.

When the government takes more than 30% of gross gaming revenue, it triggers a host of unintended consequences. Given this scenario, the trend is that only a few global companies, accustomed to operating with small margins in competitive markets, choose to test the Brazilian market. The different models of regulation in the world show that the Brazilian option will have a devastating impact on sports clubs and entities, media groups, digital entrepreneurs and the government itself.

Less companies and lower revenues mean less sponsorships and less supply (competition). This is reflected in paid advertising from the biggest national advertisers to the smallest blog or social media personality. A reduced number of licensed operators, able to advertise, will bring an abrupt reduction in revenue, collapsing the entire sports media ecosystem, as it significantly restricts the capital contribution made to football clubs through sponsorships.

And the bad news doesn't stop there. Higher taxes will cause customers to opt to gamble on unlicensed sites. The high operating cost will not allow companies based in Brazil to offer the same odds/odds that bettors are used to and that they can obtain on illegal sites in Brazil or abroad.

By encouraging the parallel market, the government decimates its own collection, loses control over sporting integrity and money laundering. Incidentally, it is important to note that unlike the United Kingdom, Brazil will levy 30% IRPF on player winnings above R$ 2,112 (US$ 445) already withheld from the payment of the bet. Studies have concluded that this amount represents, on average, another 11% of the GGR that will go to the government.

Individually and collectively, all IBJR member companies have requested and encouraged Brazil's speed in its regulatory process. In other words, this group representing more than 50 different licenses on the planet has been asking the government to pay taxes in Brazil, as they already do in other countries.

Finally, the Institute reiterates its full support for a total tax composition equivalent to that of the United Kingdom. And it does so not only because it believes that this is the best model for the sustainable development of the iGaming production chain in Brazil, but also to warn of the risk of an instantaneous disruption of the flow of resources that has helped to irrigate the sports ecosystem in the country.
 

*GGR stands for “Gross Gaming Revenue”. In a formula: from the sum of the wagered amounts is deducted the sum of the total amounts paid in winnings to the players. What remains (retained by the operator), is GGR.

Source: IBJR