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In a significant decision, Brazil’s lower house has given the green light to a bill aimed at regulating the nation’s sports betting and online casino industry.

This bill, which passed the lower house yesterday (13 September), has undergone some changes (more below) from the provisional measures introduced earlier this year.

The bill is now on its way to the Senate for further consideration. The Senate has a 45-day window to provide feedback on the revised bill, but it’s unlikely that substantial alterations will be made.

This suggests that, unless the Senate strongly opposes it, the bill could soon become law once it receives the presidential signature.

The government has voiced its support for the bill, with Jose Guimaraes, the leader of the lower house, asserting that it represents a crucial step in tackling tax evasion and boosting state revenue.

Changes in the bill

Under the new law, operator licence fees will be set at BR$30m ($6.1m), with licences valid for three years, reduced from the original five.

Operators’ earnings within the country will be subject to an 18% tax rate on GGR, while player winnings exceeding BR$2,112 (around $420) will be subject to a 30% income tax. This tax structure is already applicable to lotteries in Brazil.

The tax revenue generated from gambling activities will be allocated to various government sectors, including tourism, sports, and education ministries, the National Public Security Fund, social security, as well as sports organisations and confederations.

However, the most significant change introduced by the bill is the inclusion of online gaming within the regulated gambling sector.

While this has been welcomed by many for its common-sense approach and player protection, it also presents challenges.

Paul Leyland from Regulus Partners commented that “getting online gaming through has come at the cost of leaving all the bad bits of the regulation in, which will also apply to online gaming”.

He further noted that the 30% winnings tax on prizes over $420 is particularly burdensome, as it covers every even spin on roulette over $200, including the stake portion of the prize.

This approach is “far more logical, or at least less distortive, for lottery than for structurally shorter-odds gambling products,” he wrote.

Despite the inclusion of online gaming, concerns have arisen about the potential for a thriving black market due to certain provisions in the regulation.

Leyland pointed out that banning bonuses and requiring locally approved payment options may create opportunities for unlicensed operators and offshore solutions to thrive.

He also mentioned that the high licence fee is expected to dissuade many existing operators from seeking a licence, potentially fuelling the black market.

Local dominance?

Leyland acknowledges that the introduction of online gaming opens up opportunities for mass-market engagement, particularly in capturing a share of the estimated $10bn llegal Jogo do Bicho market.

However, he believes that local entities offering gaming alongside their existing betting networks are more likely to succeed than established operators transitioning into a licensed regime.

Another complicating factor is the potential conflict between state-led licensing options and federal regulations.

The new law could create a federal loophole and an intangible export market for smaller states seeking to gain outsized tax and job benefits.

“In theory, it is hard to see the Federal government allowing this, but it is far from certain what can be done in practice given the semi-devolved Brazilian Constitution,” Leyland explained.

In conclusion, Leyland stated that Brazil now has clarity, “but clarity that comes with chaos.”

He believes a Tipico-like localised operator will emerge as a strong player in “a challenging market, which as Germany has shown, is a pretty awful prospect for everybody else”.

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