Brazil’s betting industry warns of $503 million shortfall if tax hike proceeds

Brazil’s betting sector is raising alarms over the government’s plan to raise taxes on licensed operators, warning it could wipe out billions in anticipated revenue and jeopardize efforts to formalize the industry.

According to a new report prepared by the National Association of Gaming and Lotteries (ANJL) and expected to be delivered to Finance Minister Fernando Haddad this week, the country could see losses of up to R$2.8 billion (US$503 million) if the administration follows through on a proposed tax increase aimed at offsetting the rollback of an IOF financial operations tax decree.

The shortfall would largely come from two areas. First, ANJL estimates that up to R$2.4 billion (US$430 million) in licensing fees could be lost if companies currently waiting for approvals with the Secretariat of Prizes and Betting (SPA) abandon the process. Around 289 license applications are pending, and industry leaders worry that raising the tax rate from 12% to 18% would prompt some firms to reconsider entering Brazil’s regulated market.

An additional R$400 million (US$72 million) could vanish due to the loss of required deposits in federal public bonds, which are part of the licensing obligations.

The association contends that this combined potential loss is larger than the extra tax revenue Brazil expects to gain from lifting the tax burden on already licensed operators, roughly matching the sector’s entire revenue between January and May of this year.

The Lula government in June proposed the tax increase through a provisional measure as one of several mechanisms to balance its decision to cancel the IOF hike. Finance Minister Haddad has defended the plan, saying betting companies “make a fortune in Brazil, generate very few jobs, and send the money collected here abroad,” offering minimal benefits to the domestic economy.

Industry representatives counter that the real issue lies with illegal operators who pay no taxes. ANJL President Plínio Lemos Jorge suggested Haddad’s remarks were likely aimed at these unlicensed businesses. “When the minister talks about companies ‘out there,’ he means those that don’t hold licenses in Brazil,” said Lemos Jorge.

He also warned that pushing taxes too high could drive operators back into the shadows. “There comes a point when the illegal market starts to gain competitive advantages," he stated. "At that point, we simply can’t raise taxes, because we’ll start losing market share. Companies planning to enter Brazil will back out. Companies already regulated might stop operating.”

Both ANJL and the Brazilian Institute of Responsible Gaming (IBJR) estimate that between 60% and 70% of all betting activity in Brazil currently flows through unlicensed platforms. Lemos Jorge argues that the government would be better off boosting tax receipts by incentivizing these illegal operators to join the regulated market, rather than tightening the squeeze on companies that have already committed to compliance.