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Amid growing concern over how the government in Brazil is pursuing fiscal relief, gambling industry associations are fighting the potential increase in taxes that would threaten the profitability of authorized operators. Following an announcement that the Ministry of Finance would study raising taxes on gambling companies as a way to finance the unpopular hike in the Tax on Financial Operations (IOF), six major industry groups formally requested a meeting with senior government officials to discuss the issue.
Request for Dialogue with Key Ministries
Tuesday, 3rd June, six guilds of Brazil’s regulated gaming and betting sector sent a formal letter to discuss three ministers in President Luiz Inácio Lula da Silva’s cabinet: Fernando Haddad (Finance), André Fufuca (Sports), and Celso Sabino (Tourism). It is to clarify that any further tax increase would make operations economically unviable and provoke the non-renewal of the five-year concessions granted under the new regulatory framework implemented.
The industry maintains that with the tax burden already approaching 50% of gross revenues, any additional fiscal pressure would make further legal operation less than attractive or even impossible.
The IOF Dilemma and Legislative Pressures
This reaction from the gaming industry comes after a pivotal meeting on Monday, June 2nd, when Finance Minister Fernando Haddad met with the presidents of Brazil’s Chamber of Deputies and the Senate — Hugo Motta and Davi Alcolumbre, respectively. The session was about seeking alternatives to the contentious rise of IOF rates included in the government’s overall plan to reach fiscal rules.
Among the options suggested during the negotiations was the option of pulling out of the IOF hike in exchange for higher levies on the gaming sector. The action has unsettled players who feel they are being singled out disproportionately to cure broader budget woes.
Public Statement Highlights Risk of Driving Players to Illegal Sites
Aside from their request for a meeting, the six trade associations collectively issued a public declaration pointing out the unintended consequences of increasing taxes on legitimate betting websites. In their memorandum, it is stated that overregulation and over-taxes can have the unintended consequence of bolstering illegal offshore websites, which are not covered by Brazil’s regulatory guidelines, avoid paying taxes, and expose consumers to greater risks such as fraud and gambling addiction.
“Legal operations-combromising actions are adopted to have the opposite effect of that desired: strengthening illegal platforms that do not remit taxation, do not comply with regulatory requirements, and expose consumers to risk of fraud, gambling addiction, and other vulnerabilities, as has been seen in past decades,” the message reads.
Industry Associations Unite in Advocacy
The statement was signed by six significant institutions that represent domestic and foreign interests in Brazil’s gaming sector:
- Associação Brasileira de Jogos e Loterias (ABRAJOGO)
- Associação de Bets e Fantasy Sports (ABFS)
- Associação Internacional de Gaming (AIGAMING)
- Associação Nacional de Jogos e Loterias (ANJL)
- Instituto Brasileiro do Jogo Responsável (IBJR)
- Instituto Brasileiro Jogo Legal (IJL)
These groups collectively account for a large share of Brazil’s legally regulated gambling industry, and their collective mobilization reflects the extent to which the industry is alarmed.
A Warning Against Overregulation
The message of the industry regarding central import is that financially viable regulation is only sustainable when it achieves a balance between fiscal aims and the legal operators’ viability. As soon as the tax burden gets disproportionate, it adversely affects the economic health of legal operators but also jeopardizes the broader goals of consumer protection, responsible gaming, and regulatory control, upon which the government of Brazil has worked hard to establish measures.
As Brazil continues to struggle with its budgetary issues, the gaming sector is warning policymakers not to act in haste. The players in the sector have only just begun to operate under a new regulatory framework, and an increase in taxes at this time could destabilize the momentum set. Whether the government will accept the meeting request and reconsider the plans is yet to be seen, but the message from the industry is clear: over-taxation can undo years of regulatory progress and leave the market in the hands of illegal operators.
Source: GMB, Metrópolis
