Brazil has finally published the provisional measure to amend and implement a law that sees sports betting legalised across the world’s 6th most populous nation.
This long-awaited regulatory measure has been 4 years in the making and now takes full effect, although it will be subject to congressional approval or further amendment within 120 days.
The headline changes to Law 13756 revealed through the publication are heavily focused on collectable tax revenue.
Most significantly an 18 per cent tax will be applicable to all gross gaming revenue, which sees a 2 per cent increase on the anticipated amount.
An additional 9.25 per cent will also be applied in the form of corporate and social security taxes, which in addition to the increase from 3 to 5 per cent on gross online betting turnover, brings the total tax burden to close to 40 per cent on operators.
This alarmingly high tax rate has already come under fire. Despite no clarification forthcoming from the government regarding the intentions behind these tax increases, many have speculated that these will have a significantly detrimental effect on the legal market.
Thomas Carvalhaes, managing director of Vai de Bob an online gaming platform in Brazil, had this to say about the changes:
“My fear is that this will discourage most companies from exploring such segments in Brazil in a legal manner.”
Rafael Marcondes Marcetti, a legal director at a leading Brazilian fantasy sports operator, Rei do Pitaco, has also mentioned issues such as failing to channel operators into participating legally and even incentivising the illicit market, along with negative effects on investments and advertising rights.
It has been suggested that a reduction on the approximate R$30m (US$6.3m) licencing fee could compensate for the increased tax rate.
This fee has not been referenced in particular detail in the provisional measure but has granted Brazil’s Ministry of Finance the right to determine the upfront costs.
A range of new administrative penalties have been stipulated through this provision. These include penalties for the operation and advertising of any unlicensed sports betting activities.
The measure also states that Internet service providers (ISPs) must block unlicensed sites at the immediate request of the Ministry of Finance. The Bank of Brazil will also implement new regulations to prevent any illegal financial transactions.
These penalties will be enforceable as soon as licences become available, bringing with them a host of commercial issues.
Issues such as sports sponsorship and the larger advertising landscape. These key partnerships that the industry relies upon will be in jeopardy as the government may take up to 6 months to grant licences subsequent to an application.
Accompanying bill and regulatory decrees
Although the publication of these measures signals a landmark moment for the gaming sector in Brazil this is just the first step in the development of a complex regulatory framework.
There will be immediate additional stipulations to follow this provisional measure which will aim to protect problem gamblers and prevent match-fixing.
CONAR, the Brazilian advertising standards agency may also apply further measures to the already established advertising regulations.
Sporting events will also be clearly defined with the finance ministry afforded the ability to prohibit specific bets, prevent operators from acquiring streaming rights to these events and specific regulations will be brought forth to define the use of names and images of sports teams and athletes by operators.
It is important to note that this bill only covers the sports betting aspect of the sector, being the most monetisable. It is hoped that further legislation may allow other areas of the industry to become legalised and secured under the law.
Subsequent to the publication of this measure the Ministry of Finance has stated that it anticipates an R$2bn (approximately US$420m) in annual revenue from the newly legalised market, with hopes of growth up to as much as R$6bn to R$12bn “in a market that is fully regulated, established and operating at its full revenue potential”.
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