• Brazil has given up on a controversial Financial Transaction Tax
• To make up for the potential financial loss, the country has targeted the gambling industry
• A new 6% increase on the sports betting tax has been implemented as a result

The Brazilian government has made a U-turn on a previously proposed tax increase on specific financial transactions, with Finance Minister Fernando Haddad announcing on Sunday, that the controversial and unpopular proposal would not be implemented after all.

Brazil cancels one unpopular tax hike for another

Rather, said Haddad, the country will go after private credit instruments, financial institutions, and, not least, online betting, a newly-regulated industry in the country, which has been hailed as a way to contravene the black market while at the same time bolstering ailing public finances.

Following the latest increase of 6%, Brazilian operators will now have to meet an 18% tax. The new levy takes effect immediately, leaving little room for adapting to the new business realities. However, the law would still need to pass muster in Congress, with the chamber due to take a vote within 120 days for the law to remain in place.

With Financial Transactions Tax (IOF) proving too controversial an issue, the government has instead picked a much more pliant industry to target in the face of sports betting. The new tax burden, though, is not an isolated financial challenge that companies ought to meet, as per a recent statement by the Brazilian Institute of Responsible Gaming (IBJR).

The group argued, before the most recent tax hike, that payments to the government and various institutions could reach an effective tax rate of 26%, with more fees applied, such as a 25% on corporate income tax and a social contribution on all net profits of 9%.

Furthermore, Brazil inspects companies monthly but expects them to pay – sometimes the figure could reach as much as R$2m. This has made it difficult for smaller companies to remain competitive, the IBJR has warned, consolidating the market, and pushing out diverse players, which led to encroachment of the black market.

The effective tax burden could be hitting 35% for gambling companies

Following the announcement of the new tax rate, the IBJR and the Associa??o Nacional de Jogos e Loterias (ANJL) both warned that the effective tax payable by companies could be as high as 35% as a result, making the operational conditions unsustainable for many businesses.

Both organizations have warned that by putting the burden on the regulated market, companies were losing ground to illegal operators. Any tweaks with the tax code impact both sportsbooks as well as the best online casinos in Brazil, trade groups have warned.

However, Brazil continues to see the gambling industry as a sector that it can exploit to patch up financial woes, but the sector’s sustainability has been questioned time and again.

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