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Brazil’s proposed "sin" tax on online betting and other forms of gambling is being met with confusion from within the industry.
It was first announced last week by a congressional working group that a selective tax on harmful products should also apply to gambling, including betting and online gaming activities that are in the process of becoming regulated.
The new so-called "sin" tax is a part of President Luiz Inácio Lula da Silva’s larger tax reform plan for the country that was approved by Congress in December.
At the moment, no one knows exactly how the taxation would work, as the rate has not yet been determined.
Pedro Simões, a partner at the Veirano Advogados law firm, explained that “the proposal for a sin tax comes in the context of a wider, broader tax reform which has not at all been regulated, so it would be silly [for policymakers] to explain now how such taxation would work.”
It is also still possible that members of Congress will reject the recommendation for the consumption tax to be applied to gambling products, which are already subject to various other taxes.
Of greater concern to industry onlookers are the newly created VAT-like taxes, the Goods and Services Tax (IBS) and the Goods and Services Contribution (CBS). The proposed rates for each are 8.8 percent for CBS and 17.7 percent for IBS, which amounts to an additional 26.5 percent to be applied to gross gaming revenue (GGR) of operators active in Brazil.
The CBS and IBS taxes are meant to replace existing federal and municipal taxes that currently total about 11.25 percent of GGR, on top of the 12 percent tax on GGR for fixed-odds betting.
In other words, some day in the not so distant future once the two new taxes are implemented, operators are facing a meaningful increase in their overall tax burden.
Rafael Marchetti Marcondes, the legal director of Brazilian betting industry association IBJR and president of the Brazilian Association for Fantasy Sports, said that when that day comes, it will be significant.
“The rise of the tax burden will depend on what will be included in the tax basis. But probably it can represent a serious increase,” he said.
Fantasy sports are also set to be included under the sin tax, even though fantasy games are specifically not considered to be a form of sports betting subject to licensing and regulation.
The Brazilian Fantasy Sports Association said in a statement: “In reality, the sector deals with an electronic sports activity that stimulates the development of mental skills and logical reasoning in its users. Therefore, it does not present any harm to public health or the environment — criteria for classification under the Selective Tax.”
Simões, however, urged optimism and noted that the new CBS and IBS taxes will be phased in by 2033.
“The reform will take place slowly across the next years, so it is also not something to worry about now — at least not in operational terms, but great ideological debates are taking place at the moment.”
