The Impact of Brazil’s New iGaming Regulations: Insights from IBJR
The recent unveiling of Brazil’s Provisional Measure 1.182/23 by the Federal Government has reverberated throughout the global iGaming industry, sparking debates on the viability of the Brazilian market, which holds the potential to become the world’s largest regulated iGaming hub.
While the imposition of an 18% tax on Gross Gaming Revenue (GGR) exceeded expectations, the concerns raised by industry players extend beyond just the tax rate.
Grasping the Taxation Landscape
The government’s effort to portray the 18% tax as the entirety of Brazil’s tax burden, likening it to the UK’s, has raised eyebrows among industry stakeholders. In actuality, Brazilian taxation is anticipated to be at least 350% higher than that of the UK, as clarified by Andre Gelfi, President of the Brazilian Institute for Responsible Gaming (IBJR). Let’s delve into the key distinctions between Brazilian and UK regulatory frameworks:
GGR Taxation in Betting Operations:
- While the tax rates appear somewhat similar, the Brazilian tax surpasses the UK’s by 20%.
- In the UK, companies have the flexibility to operate outside the nation, paying corporate and income taxes in their home countries. Conversely, in Brazil, companies must establish legal entities within the country and provide services domestically.
- Brazilian operators contend with an array of taxes, including corporate income tax, PIS, COFINS, ISS, and specific contributions delineated in the Provisional Measure. In contrast, the UK refrains from imposing VAT (analogous to PIS, COFINS, and ISS) on betting operators, with corporate taxes contingent upon the company’s location.
- Consequently, contrary to government assertions, Brazil’s tax burden is expected to significantly surpass the stated 18%, potentially reaching between 29.3% and 32.3% (hinging on municipal ISS rates), with supplementary oversight fees further exacerbating the disparity.
- In the UK, an annual license for online betting operations costs approximately R$973,000 for companies with GGR up to R$133.8 million.
- Conversely, the proposed Brazilian fee constitutes a lump-sum payment of an astonishing R$30 million, exceeding the cost of a UK license by over sixfold.
- It’s worth noting that Brazil’s SELIC rate currently stands at 13.8%. For smaller operators, UK fees are notably lower, commencing at R$24,000 per annum.
- Pragmatically, the Brazilian licensing fee is poised to reach R$6 million annually, in stark contrast to the UK’s R$1 million, positioning it among the world’s most expensive licenses.
- Sizeable operators in Brazil may encounter monthly supervision fees nearing R$2 million, aggregating to R$23 million annually—an imposition absent in the UK.
Unpacking the Ramifications
These three facets accentuate the pronounced disparities between Brazilian and UK tax burdens. In an equitable juxtaposition, while the UK imposes a 15% tax on the operator’s GGR, the Brazilian tax rate could oscillate between 45% and 73%, contingent on operational scale.
Furthermore, it’s imperative to recognize that the UK boasts a mature iGaming market with decades of evolution, whereas Brazil presents an entirely new frontier for all companies. A comprehensive assessment should encompass other variables such as tackling parallel online and physical markets, regulator-operator dynamics, advertising regulations, and more, to ascertain the sector’s sustainability in Brazil.
As the government’s tax policies absorb over 30% of gross gaming revenue, unintended repercussions may emerge. The prevailing trend suggests that only a select few global companies, accustomed to navigating competitive markets with slender profit margins, may contemplate testing the Brazilian waters. The divergence in regulatory approaches worldwide indicates that Brazil’s chosen path could inflict substantial damage on sports clubs, media conglomerates, digital entrepreneurs, and the government itself.
Fewer enterprises and diminished revenues translate into reduced sponsorship opportunities and heightened competition constraints. This perturbation reverberates from major domestic advertisers to modest blogs and social media influencers. A restricted cadre of licensed operators capable of advertising is poised to precipitate a steep revenue decline, imperiling the entire sports media ecosystem by constricting the inflow of capital via sponsorships into football clubs.
Elevated taxes could steer customers toward unlicensed platforms, given that the elevated operational costs in Brazil are likely to preclude operators from offering odds commensurate with those accessible on illicit platforms within Brazil or abroad. Facilitating the parallel market poses risks to deplete government revenue, compromise sports integrity, and facilitate money laundering.
In conclusion, the Brazilian Institute for Responsible Gaming (IBJR) unequivocally supports adopting a tax framework mirroring that of the UK. This endorsement stems not only from the belief that it represents the optimal model for the sustainable development of the iGaming supply chain in Brazil but also to underscore the perils of an immediate disruption to the inflow of resources that have nourished the country’s sports ecosystem.