Finance's initiative to prevent fiscal warfare in the regulation of betting

It was in the dying moments, as the old radio sports announcers used to say. At the end of 2023, the Chamber finally approved the regulation of the online sports betting market, the so-called “bets”, whose law was subsequently sanctioned by the government of Luiz Inácio Lula da Silva.

The Ministry of Finance, under Fernando Haddad, played an essential role in the game, creating rules for companies and bettors alike, and opening up space for the taxation of the sector, which could generate up to R$ 15 billion (US$ 3.02bn) in taxes and concessions in 2024, according to estimates.

Everything seemed fine until some states hurriedly entered the field, willing to compete with the Union for a share of this jackpot. Technicians from Haddad's department have already whistled for illegality and are preparing to stop this type of play.

While everyone was waiting for new proposals from the Ministry of Finance, which stipulated a transition period of six months to be able to define details of the rules, the federal government and companies were taken by surprise by initiatives from governors Ratinho Júnior (PSD), from Paraná, and Cláudio Castro (PL), from Rio.

They started sending notifications to companies demanding the payment of a grant of R$ 5 million (US$ 1m) so that they can sell their bets in these states. The warnings were accompanied by threats to veto operations and even marketing actions. The attack caused tension that reached football clubs, which are now very dependent on sponsorship from betting companies.

The fear within the market is that state actions will cause unwanted legal instability, precisely at a time when, after five years of waiting (the law that released the betting lottery is from 2018), the Union assumed its responsibility as judge and passed to whistle the rules of the match.

The governments of Paraná and Rio are leveraging a loophole to try to profit from the betting business—specifically, a 2020 decision by the Supreme Federal Court that ended the Union's monopoly on lottery exploitation. "We were only faster than the Union," says Daniel Romanowski, CEO of the Paranaense lottery, Lottopar.

In addition to Rio and Paraná, the government of Paraíba has already opened accreditation, and Minas Gerais has created its own betting system. Among the attractions offered by the states is the license fee, as the national tax can cost six times more, reaching R$ 30 million (US$ 6.05m). The advancement in the business has the potential not only to provoke legal confusion but also fiscal warfare.

According to Wesley Cardia, president of the National Association of Games and Lotteries (ANJL), it is up to the Treasury to quickly regulate the market and thus prevent situations he deems illegal. "How can a state legislate on advertising, for example? And how can licensed operators in Rio sell nationwide? If this rule applies, there will be no reason to register nationally," he criticizes.

Betting lawyers also warn of the risk of other states entering the fray with even lower concession fees and income tax rates on Gross Gaming Revenue (GGR), which is the difference between the amount collected from bets and the amount paid in prizes. The Union foresees rates of 12%—Rio charges 5%, and Paraná, 6%.

The discussion is heated in the Treasury Department, which promises to act. According to VEJA's report, the department is preparing the editing of at least twelve ordinances to reinforce that regulation is ongoing and that, for now, bets cannot be targeted by state managers' sanctions. By the end of this period, Haddad's team promises to deliver complete regulation, including rules for the issuance of state concessions so as not to cannibalize federal ones.

Furthermore, there is concern about creating a monitoring system capable of thwarting attempts at tax fraud, such as a locally licensed bet allowing games to be bet on throughout the country. In Rio, for example, the Loterj system requires only a statement from the bettor about their address.

After years of operating in a gray area, both betting companies and Brazilian society urgently await, but without rushing, a clear and definitive definition of what will be valid. The number of companies that responded to the Treasury's call for interest (134) shows that the market no longer wants to remain outside the legal field.

According to the Treasury, state lotteries can operate in the same league, but the limits are still to be defined. Therefore, those who advanced in the game before the ball started rolling with the new stipulated rules run the risk of being barred.

Source: VEJA