Brazilian cities slash local betting taxes as federal government seeks hike

A growing number of Brazilian cities are slashing local taxes on betting firms in a bid to attract digital gaming operators, just as the federal government moves to tighten tax rules and increase levies on the same sector.

In Belo Horizonte, Mayor Álvaro Damião has proposed a reduction in the municipal Service Tax (ISSQN) charged to betting companies, lowering the rate from 5% to 2%. City officials say the move could draw new business and help increase tax revenue in the long run, citing at least six companies that have already expressed interest in operating from the city.

The proposed legislation aligns Belo Horizonte with other cities such as São Paulo, Porto Alegre, Barueri, and Recife, where local lawmakers have already approved similar 2% tax rates for the sector. Recife enacted its lower rate in May, while a comparable initiative in Rio de Janeiro stalled last year and was ultimately withdrawn.

While municipal governments see the tax cuts as a way to stimulate local economic activity, the shift has not gone without criticism. Belo Horizonte councilman Wagner Ferreira warned that such policies may inadvertently endorse a sector he considers risky.

“The social risk is very high. We don’t want BH to become the capital of Tigrinho,” Ferreira said, referencing an online game that mimics casino-style mechanics.

Ferreira has also questioned whether the city is adequately equipped to handle potential increases in problem gambling. He asked municipal authorities whether any support or awareness programs exist for those affected by compulsive betting behavior.

The city’s Health Department confirmed that such cases are handled under Brazil’s national public health system (SUS) but said it does not maintain specific data on gambling addiction cases.

The local tax relief initiatives come at a time when the federal government is looking to expand its oversight of the sector. A provisional measure (MP) issued by the Lula administration earlier this year aims to raise the federal tax on Gross Gaming Revenue (GGR) from 12% to 18%. The same tax base is also used by municipalities to apply ISSQN, while additional federal taxes target company profits and revenues.

This regulatory tug-of-war has sparked concerns among legal experts. Onofre Alves Batista Júnior, a professor of tax law at the Federal University of Minas Gerais, said the lack of coordination between municipal and federal authorities is creating a fragmented legal environment, reports Games Magazine Brazil.

He also noted that forthcoming tax reforms will prohibit cities from applying different ISS rates to individual services, potentially ending the current patchwork of local incentives.

The Brazilian Institute for Responsible Gaming (IBJR), which represents three-quarters of Brazil’s licensed betting sector, said it understands why cities are adjusting their tax policies but criticized the federal government’s broader regulatory approach.

“What concerns the betting sector is the increase in the overall tax burden imposed by federal regulation that was implemented just six months ago. This creates regulatory instability and may discourage companies from establishing operations in the country,” the group stated.