Death By Taxation: Regulated Brazil iGaming Facing Strangulation At Birth

Taxes. Taxes. And more taxes. Nascent regulated iGaming in Brazil is facing strangulation at birth because of swingeing taxes.

The story unfolds thus: In July this year the new centre-left administration of President Luiz Inacio Lula de Silva issued an executive order finally regulating sports betting and online gambling, activities that were first tentatively legalised in the giant South American nation in 2018 by Federal Law 13,756/18.

For the past five-years a host of off-shore companies, among them Bet365, MegaPari, Copagolbet, iBet, Pixbet, 21LuckyBet and Pinnacle–most of them registered by the Curacao Gaming Control Board or Malta Gaming Authority–have been operating in Brazil’s lucrative grey market sector.

The Lula decree was initially seen as a massive legal boost to clarify and regulate a booming market.

But although the measure took immediate effect it had to be voted on by Brazil’s Congress within four-months to pass into permanent law.

Congress’s Lower House, the Chamber of Deputies, has now approved the new gambling bill; and it needs only ratification, within 40-days, by the Upper House, the Federal Senate.

Inoperable

But already Brazilian gambling insiders and experts are denouncing the putative online gambling “legalisation” and regulation–which plans to impose an 18 percent floor rate of tax–as inoperable, “strangled at birth”.

“The provisions of [the new bill] introduces a tax rate of 18 percent,” one highly-placed source close to the process told iGamingFuture. “But when accounting for additional taxes, the cumulative tax burden for companies could reach approximately 30 percent.

“What’s more, the imposition of taxes on players’ winnings would position Brazil among the nations with the highest tax obligations in the world.

“This presents a legitimate concern because companies may transfer these costs to players, who, if dissatisfied, may explore more advantageous alternatives.

“I would say it’s the equivalent of strangling the bill at birth.”

Earlier this year, Brazil’s Finance Minister Fernando Haddad argued that online gambling companies were not paying any taxes; while profiting massively from their operations in this sports and betting-mad nation of 216.46 million people, the 10th richest economy in the world.

He estimated the new online gambling bill would raise about BR2 billion, the equivalent of some £341.27m/US$423m, in the first full year of operation alone.

Tortuous

Now it seems that the mother of all legislative battles is looming to shape the final outcome of Brazil’s tortuous pathway to fully regulated iGaming.

As it stands, for example, only businesses with headquarters and administrations in-country will be able to operate.

Betting on fantasy sports remains illegal.

An operating licence fee for a single betting app, for only three-years, will cost BR30 million (£4.89m/US$6.1m).

Along with tough AML and Responsible Gambling measures, bonus bets are banned, as are credit lines.

Bettors can only use banking accounts registered and based in Brazil. Only institutions authorised by the Brazil Central Bank will be allowed to offer payment services.

How all these measures–some undoubtedly commendable, others arguably draconian–will stack up, only short time will tell.

But there’s a strong case to argue that Brazil’s nascent betting baby will be strangled at birth by “taxes, damned taxes.”