Online sports betting in Brazil to be taxed at 15% and licenses to require an investment of nearly $6M

The government of President Luiz Inácio Lula da Silva has outlined, in a draft sent to the Office of Attorney General of the National Treasury (PGFN), the taxation model for online gambling.

According to Poder 360, the Executive Branch proposes a 15% tax on GGR (Gross Gaming Revenue, or gross revenue minus prizes paid), and the value of the license, valid for five years, will be BRL30 million ($5.92 million).

The idea of the economic team follows the model of the United Kingdom, which defined the same percentage and reached 90% of companies acting legally.

According to the report, the Ministry of Finance has already closed the initial text and sent the project to the PGFN, which analyzes its constitutionality.

The next step for the economic team will be to gather the opinions of representative entities and other ministries this week. The main soccer clubs of Rio de Janeiro and São Paulo, which complained about the lack of participation in the process of construction of the Provisional Measure (MP), were heard on April 11, and the CBF (Brazilian Football Confederation) is to attend on Thursday, April 13.

Among the CBF's demands is the allocation of a greater share of the revenues obtained from betting, and the government said it is open to negotiating with both the Confederation and the clubs.

The draft of the MP, however, proposes, for now, the continuity of the 1.63% allocation for entities that grant brands to sportsbooks, while the Confederation seeks to reach 4%.

The clubs have two main demands: a change in the way betting profits are transferred (as they want to eliminate the concentration of the CBF, which distributes the funds) and ask for flexibility in the payment of the licenses that the MP will stipulate, to ensure the continuity of the operation of betting companies in Brazil, and sustain sponsorships to their teams.

According to market estimates, the BRL30 million ($5.9 million) in cash could be paid only by a maximum of 13 companies operating in the industry, which already sponsor teams in the A, B, and C series of Brazilian soccer.

Regarding the other 10 companies that sponsor a total of 13 soccer teams, there are doubts as to whether they will be able to pay the amount.

Poder 360 also found that the text of the Provisional Measure is not limited only to taxing companies that operate online sports betting but covers a broader scope to revive the modalities of instant lotteries or scratch cards eliminated during the government of Michel Temer.

With the return of scratch cards, the government expects to collect BRL 5 billion a year ($986.88 million). This amount is reflected in the estimated collection of at least BRL12 billion ($2,368.5 million) by the MP, announced by the Minister of Finance, Fernando Haddad.

Lotex was operated by Caixa Econômica Federal, which had the monopoly of lotteries in the country but was tendered in October 2019. The Instant Star consortium, formed by IGT and SGI, kept the business but announced in 2020 that it would withdraw from the concession process due to requests not met by the government.

Another reason for the company to abandon the business was a decision of the STF (Supreme Federal Court), which defined that the exploitation of lotteries was not exclusive to the Union, thus allowing the states and the Federal District to manage the activity. This opened a market of greater competition for the consortium, which wanted to explore in exclusivity the instant lottery.

In addition, internal studies by Caixa showed the Lula government that the 'scratch-off' was the second lottery with the highest earnings in the world. When it was discontinued, it ended up affecting the Union's revenues, and its return is part of the government's fiscal effort to increase revenues.