A few minutes after approving the text by rapporteur Adolfo Viana (PSDB-BA), the president of the National Association of Games and Lotteries (ANJL), Wesley Cardia, told GMB that “the project being voted on contradicts market laws.” For him, higher taxes and grants “mean smaller investments, fewer bets and, therefore, lower revenue by the State.”
Even though he was disappointed with the approved text, Cardia stated that Adolfo Vianna, “very intelligent, quickly realized that more taxes would mean greater participation in illegal gambling. He defended logic as much as he could, but he was defeated.”
The entire sector echoes the leader and some businessmen point out that it will be very difficult to find ways for the segment's economic viability. “It will be a herculean challenge for the activity, as it will have to pay in cash a grant of R$ 30 million for an operation lasting just three years and with a tax burden that will exceed 30%,” stated the director of an operator that asked not to be identified.
The sports betting segment is disappointed with the result of the changes that were made to the bill approved last Wednesday 13th. In addition to not reducing the tax burden, as was previously stated, there was confirmation that the grant will cost R $30 million and will only be valid for three years, while the sector expected the value to fall by half or for the grant to be valid for ten years.
Waiting for regulation for almost five years and contributing to discussions about the activity, the main players leading this contribution felt frustrated with the replacement for the Bill, prepared by rapporteur Adolfo Viana (PSDB-BA).
The sector was taken by surprise after hearing the rapporteur's statements saying that they were reaching a consensus on reducing the tax burden. Even José Francisco Manssur, advisor at the Ministry of Finance responsible for the regulatory process, said in a public hearing in the Chamber of Deputies that the government and rapporteur had reached an agreement on “very important tax flexibility, something that will make the market accessible.” In the end, it remained at the same 18%, which was already heavy for the operators.
Brazil, which had been seen as a future giant in the sports betting sector with regulation, began to be seen as having the highest tax burden in the world. With the application of 18% on GGR plus other taxes, the segment will bear between 32% and 35%.
Reinvent the wheel
Thomas Carvalhaes, director of Vaidebob, told GMB that “the industry’s position is unanimous. Nobody is happy. It is an unprecedented setback, reaffirming that Brazil is the only country in the world that considers sports betting to be a lottery.”
For him, “it is sad to see that regulators in Brazil prefer to try to reinvent the wheel and make mistakes that other markets have already made. It has to be a win-win for everyone and Brazil is going against the grain, doing everything wrong with regard to the commercial viability of our industry and focusing on the financial aspect.”
The Vaidebob executive says that “the five years with a GGR of 18% no longer made sense and now the same percentage and the reduction in the term have made the situation even worse. Return on investment is impossible,” he analyzed.
Thomás also highlighted the maintenance of the 30% income tax for bettors. “It’s further proof that they are imposing the lottery’s focus on sports bettors. It is impossible and we hope that this changes in the Senate and that they have the sense to review the project approved by the Chamber. It was not a lack of positioning, as the industry has always shown itself to be collaborative. If this scenario is maintained, Brazil will be the largest black market in the world,” he assessed.
Senate needs to change the project
Another businessman in the sector who expressed dissatisfaction with the project as it was approved by the Chamber of Deputies was Darwin Filho, CEO of Esportes da Sorte. For him, “there is a unanimous feeling in the sector of political and not economic concern on the part of the government regarding the activity.”
“We hope that the technical aspects well understood by members of the Ministry of Finance will be taken into consideration in the Senate, serving to support decisions in the Senate for the necessary changes to enable an economic activity that has a lot to contribute to Brazil's successful regulation in a way that guarantees financial resources for the public entity and allows free competition in the private sector.”
According to him, it is essential that the project is amended by the Senate and that the tax burden is reduced so that the activity becomes more attractive to operators so that they qualify for the future regulated market in Brazil.
Impactful and disproportionate taxation
Luciana Macorin, head of legal at Salsa Technology, also analyzed the current situation in the sector in Brazil and stated that “as the text stands, it practically makes operations at a national level impossible and strengthens initiatives on the part of state lotteries.”
According to her, “the 18% taxation is shocking and disproportionate, well above any percentage applied by the sector in the rest of the world, but, unfortunately, the project maintained Brazil's history of being a country with very high taxes.”
Another point she highlighted in agreement with other market players was the reduction in the grant period, “even more detrimental to any possibility of success. Operating and marketing costs are high and it is very challenging to reach break-even in such a short period of time, especially with such fierce competition.”
Luciana also pointed out the concern regarding the taxation of bettors. “We know that, even without regulation, there are many serious operators, who act responsibly on several fronts such as player protection, anti-fraud systems, etc. The industry will continue its role in highlighting what is important for players to identify serious operators. Players will continue to choose what is best for them. A regulation that practically encourages resistance and the increase in the unregulated market does not exactly help players to make a safe choice,” she highlighted.
Macorin hopes for changes to the project while it is being processed in the Senate. “We know that entities in the sector are already moving to expand (once again) the debate. We are in the crowd and more than that, we are willing to actively participate in this debate,” committed the head of legal at Salsa Technology.
Minimum deadline
Diogo Souza, business director of platform developer SGA, pointed out that the inclusion in the approved project of technical elements relating to placing bets, as well as issues linked to advertising, security mechanisms and integrity of bets, payment transactions “it’s a bit much, at first glance.” For him, however, “it is natural to establish general rules for carrying out activities previously unregulated in the country.”
As for the tax and concession issues, the executive was concerned. “Unfortunately, it does not seem like an encouraging scenario for the regularization of the segment, especially for small to medium-sized operators.”
For him, the grant of R$30 million “will be valid for a minimum period of three years. And it is worth remembering that, in addition to the 18% charge on the proceeds from the operators' contributions to the Union after deducting the payment of prizes and the income tax levied on the prize (GGR), the operators would also have to pay the Inspection Fee for the commercial exploitation of the fixed-odd betting lottery, with values indicated in the annex to Law No. 13,756/2018, taxation of the regime adopted by the company, state licenses, ordinary taxation of other federative entities, as well as other costs intrinsic to development of operations.”
In any case, Souza expects more debates on the topic. “It is possible that changes will appear in the aforementioned project. It is expected that the new deliberations will be supported by real studies regarding the impact that the requested obligations would have on operators in the segment, attempting, in this sense, to achieve a feasible regularization of the costs of operations that boosts free competition.”
Discouraging factors
Luis Traversa, COO of Betmotion, another important player in the market and one of the oldest betting sites operating in Brazil, is also apprehensive about the tax burden defined in the approved substitute.
“The regulation of sports betting in Brazil is a positive step, as it represents an advance in the recognition of the activity. However, with an 18% tax on GGR, added to other taxes, the total cost can exceed 25%. This can make it challenging to achieve a return on an initial investment of R$30 million. The ideal would be regulation that benefits all parties involved: the government, with adequate revenue; the operator, with fair profitability conditions; and the player, with a satisfactory user experience.”
Another worrying factor is the collection of Income Tax for players. “The 30% tax on prizes can be a discouraging factor for many players, especially when we consider that there are international platforms that do not apply such a tax,” recalled the COO of Betmotion.
“The modern player is informed and seeks the best conditions for their gaming experience. If he finds himself faced with high taxes, he can look for alternatives, such as using VPNs to access foreign websites. It is crucial to offer a competitive and attractive environment to retain the player legally,” warned Traversa.
The executive stated that although he is not a policy expert, “it is my hope that the Senate will consider adjustments that benefit the sector. It would be ideal for the license term to be extended to a period of between five and ten years (preferably 10 years), with a total taxation, including taxes, that does not exceed 18% - 20%. The balance between revenue and business sustainability is fundamental to the long-term success of sports betting in Brazil.”
Business plan
Carla Dualib, regional business development manager at SOFTSWISS, understands that the technical criteria “seem to us to be coherent and aligned with those applied in other locations.”
One of her concerns is the taxation of bettors. “In other countries, these taxes are generally equivalent to a capital gains tax. This raises the question of which areas of Brazil still have taxation of this magnitude,” she commented to GMB.
Furthermore, Carla highlighted the reduction of the license period to three years. “The operators’ business plan must certainly undergo a good exercise. As practice shows, any violation of the interests of players leads to a departure to offshore zones. Currently there are many brands that, for example, use the Curacao license. And yes, we think there are ways to be sustainable,” she said.
“We think there is still room for change. Let's wait. We are always ready to assist with whatever is needed,” committed the regional business development manager at SOFTSWISS.
Source: GMB
