As the curtain fell on 2023, Law No. 14,790/23 was enacted to finally regulate fixed-odds sports betting - where bettors know, prior to the result, the rate of return - and fantasy sports, the electronic sport in which competitions take place in a virtual environment, based on the performance of real people.
After years of intense discussion among stakeholders, regulation came to boost the sector, which already had companies operating in Brazil despite the legal uncertainty brought about by legislative gaps, and brought important pillars for attracting or even expanding these investments.
Taxation has been one of the most debated aspects since 2018, and defining an "ideal model" is never an easy task, especially given the specificities of the betting market which, once regulated, will face competition both from equally regulated markets abroad, as well as from unregulated markets operating irregularly.
An estimate made early in the year based on statistics released by the Central Bank indicated that Brazilians' spending on online gaming and betting would be approximately US$ 11.1 billion, equivalent to R$ 54 billion, during the period from January to November 2023, a more significant amount than what would have been generated by Brazilian beef exports, for example.
On a global scale, a report produced by H2 Gambling Capital with the International Betting Integrity Association (IBIA), considered unprecedented, showed that the global regulated market generated US$ 74 billion in gross gaming revenue in 2019 (from US$ 490 billion in turnover), with a forecasted growth of up to US$ 106 billion (from US$ 770 billion in turnover) by 2025.
Therefore, this is a market that could not continue to be ignored, and its proper regulation, oversight, and taxation have become indispensable. Thus, the taxation model, in addition to obviously focusing on revenue aspects, needs to be based on the evaluation of successful and solid experiences in the global market, where attractive taxation has become a decisive aspect in converting the offshore market into onshore.
Regarding the calculation base, we have shifted from an initial taxation model based on turnover (TO), i.e., the total revenue from bets, to the Gross Gaming Revenue (GGR), where the taxation of companies subtracts the prizes paid to bettors, as well as the contribution to social security (0.10% applicable to physical bets or 0.05% to virtual bets), which is closest to what is practiced in other countries and has been treated as one of the most delicate points by the sector.
With regard to the equally controversial tax rate, there has been a reduction from 18% to 12%, so that companies may retain 88% of gross revenue for activity costs. It is worth noting that operators will also be subject to local taxation applicable to any company incorporated in Brazil, namely: IRPJ, CSLL, PIS, and COFINS, under the chosen tax regime (Real Profit or Presumed Profit), in addition to ISS with rates between 2% and 5%, depending on the municipality.
To obtain authorization for the operation of bets, operators will be subject to the payment of a maximum amount of R$ 30 million Brazilian reais, as a fixed grant, considering the use of 3 commercial brands, for a period of five years.
Regulation also followed the favorable trend of markets abroad regarding the non-limitation of the number of licenses granted, increasing competition in the sector. In addition, there will be a supervision fee, which will be charged monthly on the collection product, after deductions for destinations provided for by law and which may vary between R$ 54,419.56 and R$ 1,944,000.00.
Regarding taxation on bettors (and here there was an equalization of treatment for fantasy sports), it was defined that the applicable rate will not be 30%, but 15% on net prizes, however, not applicable to exemption on the first bracket of the IRPF table.
As a result of this taxation model, it is expected that direct revenue from bets will reach R$ 12 billion in 2024 alone, according to studies presented by the Ministry of Finance during the regulation process. Furthermore, the creation of at least 10 thousand direct and immediate jobs is estimated.
Even with such encouraging market data, the proposed tax modeling has been criticized by some sectors, especially tobacco and beverage, arguing that the burden of bets would be lower and that there would be no discouragement to the newly regulated sector. However, these comparative analyses may be inconsistent.
The first aspect to observe is the technology and specificities of the betting sector. The acceleration of online gaming has easily enabled access to foreign markets, with tax allocation to other locations, in addition to the evident lack of regulation and oversight. Not only does it compete with equally regulated sectors, but also with the underground market, which, unlike tobacco and beverages, is easily accessible from anywhere, and discouraging access to such markets would undermine the very purpose of legalizing bets.
A more coherent comparison would be in accordance with what is practiced in the global market, based on structures that have been operating bets for years and where it has already been possible to observe what works or not. In this sense, the report produced by H2 Gambling Capital with IBIA shows that a model considered a reference is one that, in addition to providing bets in physical and online channels without license limitations, has strong player protection measures, betting integrity protocols, clarity regarding advertising and sponsorship parameters, and a sufficiently attractive taxation.
Based on this, models such as that of Poland (12% on turnover - TO), Portugal (8% on turnover - TO), or even France (GGR of 55% with an additional tax on races and sports rights), have become almost prohibitive and have not been able to attract the initially expected consumers.
On the other hand, systems in the states of New Jersey, Nevada, in the United States, or Britain, which have competitive models (with GGR equal to or less than 15%), in addition to other applicable taxes on the operation, have shown a strong rate of consumer capture, with more than 90% onshore, and a high number of operators, which reflects the expected fiscal return logic.
Thus, only a robust, competitive market with protected consumers will be able to convert the offshore and onshore market, increasing not only investments from operators and companies directly related to the market but also generating direct and indirect employment, as well as the desired tax revenue by the government.
Therefore, the non-observance of successful global models by the Brazilian legislator would be counterproductive to achieving the objective of the law itself and to maximizing the market, which has everything to be promising in Brazil.
Elisa Garcia Tebaldi
Tax lawyer at Ambiel Advogados. Graduated from PUCCAMP and specialist in tax law and tax planning from the Brazilian Institute of Tax Studies (IBET/SP).
