GMB - How can Brazil benefit from a new regulated gambling market in terms of national tax collection?
Federico Lannes- It would certainly be a huge benefit to the state coffers. It is estimated that up to R$ 20 billion of taxes per year (slightly less than USD 6.2 billion) could be received, generating around 500,000 direct jobs for the legalization of all types of gambling (casinos, bingo, federal and state lotteries,
local jogo
do
bicho,sports betting, online betting).
In
this
respect we must make some considerations.
Gambling already exists in Brazil, but in a clandestine way, as the popular " jogo
do bicho”. In this modality, 20 million Brazilians bet daily in 350 thousand points throughout the country. There you have a huge tax evasion and this argument is not considered by those who are against the legalization. Lotteries operated by the Caixa Econômica Federal generate R$ 11.1 billion per year (USD 3,4 billion), while illegal gambling annually moves clandestine bets almost R$ 20 billion, of which R$ 1.2 billion (USD 3.57 billion) correspond to the " jogo
do bicho". The bingos, which in Brazil operate clandestinely, fail to deliver some R$ 1.3 billion (about USD 3.97 billion) to the treasury. In addition to the loss of revenue for the state in taxes, people affected by this activity work clandestinely and do not generate contributions to the pension system.
In 75 years, the prohibition of gambling did not eradicate illegality. Every 3 reales bet in Brazil, only 1 is destined to the official game.
Regarding social benefits contemplated in the two bills dealt with by the parliament, it is mentioned the reduction of regional and social inequalities with public policies of education, health, social security, public safety, prevention and treatment of gambling. How much will be devoted to each thing will be seen later in the regulation of
the
law. Undoubtedly will benefit the states and municipalities throughout the country with a new industry that will generate money for the state coffers in addition
to
large number of jobs.
Is there a tax model of another regulated market that fits better in the structure of Brazil? Which country model would be good to follow?
I do not see
in the projects similarities with other models of South America. In Uruguay, the state is a partner of the operators and manages the rooms. In Paraguay there is a new bill in progress that will give more transparency and competitivity to the activity against the future competition of the game in Brazil, mainly in border areas. In Argentina, each province grants the licenses. That is why I believe that Brazil should make its own way by replicating the best practices in the field at the international level focusing on growth in the hotel industry and casino as it has been with great success in the state of Nevada in the United States. There, the favorable business climate has allowed the growth and diversification of services not related to gambling (hotel, entertainment, gastronomy, shopping malls, transportation, etc.). Today gaming represents only 35% of total revenues in Las Vegas, compared to 65% of revenues for hotel services, gastronomy, entertainment, malls, transportation, etc.
What can you tell about your experience in the neighboring country of Argentina?
Argentina is a market with a lot of competition and players are increasingly demanding in the quality and diversity of services in the gaming rooms and also in the hotel industry. That's why we have to be prepared to offer good products: Poker tournaments with attractive prizes, fidelity clubs, new slot machines, VIP play areas, table credits, game vouchers, etc. This is nothing more than having a customer-oriented company.
In this sense, the area of marketing player development of a casino has a key role to take care of the players. It is a strategic area and, as such, must have the human and material resources necessary for the proper management of the VIP client.
Information systems are a valid tool to
follow
online live game on the floor, as well as the gaming record, as well as personal data of the player
allows
to address the expenditure of the area of player development in a more effective way.
Although there are many VIP players that visit casinos through representatives, there are also those who do it individually and sometimes the hostess and managers on the floor do not identify them as such,
and
consequently do not receive the benefits and gratuities of the another group. That is why the area of player development should take the precautions to identify and track the activity of each person in the room. A casino should always keep in mind that a VIP player who is disconcerted will hardly return if he is not properly treated as such.
What factors should be taken into account when setting tax levels in gaming?
1) Consider the tax rates of the industry at regional and international level evaluating the most successful cases of growth. The state should not overload its inefficiency to the activity. When this happens we see very successful cases that are harmed, like Panama.
2) Taxes on player bets should not
be
imposed, since high rollers or VIPs are very sensitive to these changes and migrate quickly to less bureaucratic regions. They are the ones who support large investments in hotels and casinos, such as Macau, where they represent on average more than 50% of total revenues.
3) The income tax on gambling halls also has
had
negative
impact for the activity in the countries where it was applied.
4) The state must have a stable and long-term tax policy, avoiding that after the start of operations the rates are modified, which makes new projects unviable and modifies returns on existing ones.
5) A control body should be considered in relation to suspicious money laundering operations, which significantly helps to make the activity transparent.
6) Municipalities and states should not create double taxation rates for both hotels and casinos, as they
make
destination more expensive and discourage the activity as a whole.
Should online and physical gambling have the same or different taxes?
Let’s consider some issues:
There is a myth that online gambling cannibalize players from land-based casinos. Researches have shown that these are complementary businesses.
There is also a dubious assumption that
online gamers and live game players are the same. This also indicates an ignorance of the gaming patterns for each case.
On the other hand, online and land based gambling have different costs and margins. Tax rates are not the only factor determining the potential of a game to generate revenue or its profit margin for a casino. A dollar introduced into a slot machine does not generate the same income as a dollar bet on a roulette table.
Slot machines and table games have different operating costs and, therefore, very different profit margins. That is the reason why tax rates are differentiated. Employee salaries, maintenance, game speed, and the operator’s margin are just a few of the factors at stake.
Online games also have different operating costs. As an example, for every dollar generated in online gambling in Atlantic City, USA, there is 25% advertising, 18.5% corresponding to payment processing, customer data (KYC), platform geolocation costs and content. 20% go to player reinvestment (promotions and player retention costs). 17.5% are taxes. 12.5% administrative and staff costs and 5% EBITDA (2).
Advertising is a key item in the costs for online business development as well as capital investment in land-based casinos. And it can reach 30-35% of total expenses.
It is therefore understandable that online gaming have different tax rates in relation to live gaming.
How long do you think it can take to define and implement a tax model for the new Brazilian market?
The time that will be able to convince the detractors of the industry on the benefits in terms of tax revenue, employment, tourism and investments that this will bring for Brazil.
Brazil is known for its tax hunger. The gaming sector, by its characteristics, is already highly taxed.
Do you think the activity will support the taxes and other fees that the Brazilian government expects to receive?
I do not know what those rates are, they have to be defined, and I hope they are reasonable. In the state of Nevada, taxes generated by the hotel industry-casinos represent the highest percentage revenue to state coffers above other activities. Let's look at some figures.
- According to the Nevada Resort Association (3),
during
fiscal year 2014, more than US$ 2 billion in taxes and fees were paid to Nevada by casino operators. This included important contributions to Nevada's three largest revenue streams: Sales Tax, Property Tax, Gaming Taxes.
- Nevada hotel casinos account for almost 45% (US$ 1.4 billion) of total State revenue, more than any other industry.
- More than a third of all funding for Nevada public schools comes from the gaming industry, it is levied with the hotel room tax, which is charged at a rate of up to 13 %.
- It is estimated that approximately 33% of sales tax is paid by the gaming industry, its employees and tourists, thereby reducing the tax burden of the average Nevada resident.
No doubt a virtuous circle has found the right balance in state policies to promote growth without changing taxes.
(1) https://www.uspoker.com/blog/online-gambling-lower-tax-rate-pa/16757/ written by Steve Ruddock.
