The iGaming industry reacted negatively to Brazil’s sports betting PM, which regulates sports betting, and now hopes are pinned on amendments that will be made in the National Congress.
After the publication of Provisional Measure No. 1,182, sports betting became a regulated activity in Brazil.
Despite being the country’s law, the MP still needs to be approved by the National Congress within 120 days. Therefore, it may be subject to further changes.
According to Luiz Felipe Maia, founding partner of the Brazilian law firm Maia Yoshiyasu Advogados, some of the regulations have faced criticism from operators.
Criticisms include:
- The tax rate being higher than expected;
- Inaccurate payment rules;
- Regulatory risk for operators.
“Reactions to the PM are 99% negative,” says Maia. “This is due to taxation, restrictions – but mostly taxation.”
While the main tax rate published in the MP is 18%, it increases to 30.82% on gross gaming revenue (GGR) when applicable additional taxes such as PIS,
Game Monitoring Fee, COFINS and ISS
Operators will be subject to a full 30.82% GGR tax rate when additional contributions are considered.
In addition, earnings over R$2,112 are subject to up to 30% tax. This regulation already existed before the MP.
“I was very frustrated to see that they didn’t change the tax on the earnings,” says Maia.
Maia emphasizes that the tax rate is higher than in previous draft regulations.
“This one is much worse,” he says. “Previous drafts understood that the ideal level of taxation would be somewhere around 20% and not above 30%.”
Sports betting MP has ambiguous rules
Maia also questioned how payments will work under the new regime.
Currently, the Central Bank of Brazil establishes the same payment codes for sports betting and other modalities, such as poker and casino games, which have very different regulations.
For example, poker is considered a game of skill in Brazil and is therefore legal, while online casinos operate in a gray market environment.
As the PM imposes restrictions on sportsbook payments, there are unanswered questions about how exactly these payments can be made.
“If the Central Bank imposes restrictions on the [sports betting] transaction based on the code, it will affect poker operators as well,” says Maia.
“We don’t know if the Central Bank will create a specific code for sports betting or if it will allow other gaming services to be paid with a different code”, he added.
Operators face unintended regulatory risk
Observers also criticized confusing rules about how traders should seek to enter the market.
Article 35C of the MP lists the circumstances in which the regulator can impose penalties on operators for violating the law.
This includes operating and advertising a sports betting site without prior authorization from the Ministry of Finance.
Punishments for violating these regulations can include fines and a ban on receiving a license.
Since sports betting has been tolerated for a long time in Brazil in a gray market environment, the PM includes a clause stating that this will only apply after the Ministry of Finance opens applications for licenses.
“The problem is that there is a delay between that and the start of operations,” says Maia. “Unless the minister defines it, they change it in Congress or the Ministry of Finance defines it, then we will have a break”.
“And if operators continue to operate during that interval, they could be subject to penalties.”
Amendments to the PM on sports betting in Congress
As mentioned, the PM has 120 days to be approved or denied by Congress. During this period, the measure will be subject to amendment.
Maia believes that it is vitally important to use this period to solve PM problems.
“At the end of the day, we end up with a market that is not very attractive from a regulatory point of view and from a tax point of view, because taxation is very high.”
Overall, Maia believes that the publication of the PM is a positive development. But he also believes it is vital to resolve these issues soon.
“There’s a lot of work to be done with Congress to amend this Provisional Measure and make it something viable for the industry.”
