Brazilian betting operators to face 3% turnover tax

Brazilian sportsbook operators will face a 3% tax on turnover rather than the previously expected 1%, EGR understands.

Initial provisions in law 13,756/2018 had set the rate at 3% of turnover, however in a consultation paper released by SECAP earlier this year, the regulator had proposed reducing this to 1% in a revised version of the decree.

This was estimated by the Brazilian government as being broadly equivalent to 6% of gross gaming revenue. However, EGR understands the regulator will be unable to see this through  on legal grounds.

Members of the Secretariat of Evaluation, Planning, Energy and Lottery (SECAP) committee of the ministry revealed the news at an industry event in Sao Paulo last week.

Speaking about the turnaround, Brazilian law firm Montgomery & Associados cited the superseding 2018 law as overriding the draft decree. As a result, any changes to the taxation rate would first need to be enacted in a new law approved by Brazil’s congress.

“The draft decree circulated during the public consultation round aimed to reduce the tax to 1% of turnover, but the regulator was advised that this would not be possible by the enactment of the Decree, which is an administrative norm and as such is incapable of overriding a federal law. Consequently, another ordinary law will be needed to reduce the tax rate to 1%,” added Neil Montgomery, the firm’s managing partner and head of its gaming and betting practice said.

The finalised presidential decree confirming sportsbook regulations is expected to be released during the latter half of January 2020, when it will be published in the Brazilian official gazette.

Officials have said the decree will become effective no sooner than six months after publication, potentially allowing for the licensing process to commence as early as August 2020.

At the event in São Paulo, SECAP has  also reportedly agreed to drop the so-called “bad actor” clause, however this has not been confirmed. The clause would have given Brazilian regulators the power to permanently suspend licences and bar operators from the market for up to 10 years.

Addressing the clause, Montgomery & Associados added “When we referred to the “bad actor” clause it is the clause known in Brazil as the “quarantine” clause, whereby foreign operators already accessing the Brazilian market will not be prevented, via their local subsidiaries to be incorporated, to apply for a licence.

Operators applying for a licence will still be required to declare that they have not operated illegally in regulated lottery or sports betting markets. There were rumours earlier this year that the regulator would be changing the word “illegally” to “having committed a criminal offence,”.

“We will need to wait to see what is released with the final version of the decree,” Montgomery added.

SECAP also said the security bond guarantee payable by operators to guarantee payouts to players will be raised from R$6m (£1.1m) to R$18m (£3.3m).

A full version of the decree will be released solely in Portuguese and will not be published in English it has been confirmed.

Earlier this week, Malta-headquartered operator Betsson Group announced a deal to purchase a 75% majority stake in locally licensed betting operator Suaposta for an undisclosed fee.

The operator said it was targeting the “best position” possible in the run up to the launch of the sports betting market in Brazil.

In October GVC CEO Kenny Alexander claimed the Brazilian sports betting market could be as big an opportunity for the firm as the emerging US sports betting market.