Summary
- Brazil has abandoned its contentious Financial Transaction Tax.
- To offset potential financial losses, the government has focused on the gambling industry.
- A new 6% increase in the sports betting tax has been implemented as a consequence.
On Sunday, Finance Minister Fernando Haddad announced that the Brazilian government has reversed its decision to implement a previously proposed tax increase on certain financial transactions, citing the plan's controversial and unpopular nature.
Brazil cancels one unpopular tax hike for another
According to Haddad, the country plans to target private credit instruments, financial institutions, and online betting—a recently regulated sector praised for its potential to counteract the black market and strengthen struggling public finances. Following a recent 6% increase, Brazilian operators now face an 18% tax. This new levy is effective immediately, leaving businesses with minimal time to adjust. However, the law still requires approval from Congress, which must vote within 120 days for it to remain in effect. The government opted not to pursue the controversial Financial Transactions Tax (IOF) and instead focused on the more accommodating online betting industry. Yet, the new tax is not the only financial hurdle for companies, as highlighted by the Brazilian Institute of Responsible Gaming (IBJR). Before the latest tax hike, the IBJR indicated that payments to the government and various institutions could lead to an effective tax rate of 26%, including a 25% corporate income tax and a 9% social contribution on all net profits. Moreover, Brazil conducts monthly inspections and expects companies to pay amounts that can reach up to R$2 million, creating challenges for smaller businesses to remain competitive. This situation, the IBJR warns, is consolidating the market, eliminating diverse players and potentially increasing black market activity.
The effective tax burden could be hitting 35% for gambling companies
After the announcement of the new tax rate, the IBJR and the Associação Nacional de Jogos e Loterias (ANJL) cautioned that the effective tax burden on companies could reach 35%, rendering operational conditions unsustainable for many businesses. Both organizations have stated that by imposing such a heavy burden on the regulated market, companies are losing their competitive edge to illegal operators. Despite this, Brazil continues to view the gambling industry as a potential source for resolving financial issues, although the sustainability of the sector is frequently questioned.
