The ‘Bets’ foresee that the tax increase announced this Monday (9) by Finance Minister Fernando Haddad (PT), as part of the compensation for the IOF hike, will make the recently regulated sector’s legalization unfeasible.
According to Marcondes, with the tax reform, the burden on the gaming industry could exceed 50%. Combined with rising taxation and the State’s inefficiency in combating the illegal market, this will jeopardize the business, forcing several companies to return their licenses.
Folha – The sector had already complained about the tax burden. Was the IOF compensation measure the last straw?
Rafael Marchetti Marcondes – That’s how the sector sees it. This is the first time all associations have aligned [in response to a government measure]. That had never happened before because the sector is fragmented.
Do you think you're being penalized because of the nature of the business?
There’s a mistaken perception by the government and Congress that the ‘Bets’ will indefinitely tolerate successive tax increases. Applying additional taxation to address social impacts and direct funds to health, public safety, and education makes sense.
The industry doesn’t oppose that. We’re not blind to our impact. We already pay all the corporate taxes any service provider does — ISS, PIS/Cofins, Income Tax, CSLL — and we also pay a 12% gaming tax on revenue, already meant to offset the activity’s impacts.
And now there will be a selective tax under the tax reform.
Exactly. They are double-taxing the sector under the justification of mitigating health impacts. And, let’s be honest, tourism takes a huge share [of the gaming tax] without being impacted [by ‘Bets’], while health, which is more affected, gets a much smaller portion.
What is the current tax burden on the sector?
It’s already around 42%. With the selective tax from the reform, we estimate the tax burden will exceed 50%. Now, the government wants to offset the IOF loss by including ‘Bets’, but the sector is already close to its limit. If a new burden is added, pushing the rate to 55% or so, the industry won’t stand it.
What will the ‘Bets’ do?
The government is projecting revenue that won’t materialize. The taxes will eat into margins, operations will shrink, and some companies will go under. The online betting industry is already slowing down.
What will likely happen in Brazil is what happened in Portugal and France—companies returned their licenses or chose not to renew them in the next cycle. These licenses are valid for five years.
So, will they all go back to the illegal market?
Those who bought licenses may return them and operate from abroad, depending on the entrepreneur’s profile. Some will operate illegally. The legal industry is already struggling. There’s also a clear inefficiency by the government in curbing the illegal market. We estimate that over 50% of betting activity occurs on unlicensed sites. And the government can’t enforce oversight.
Why?
The money coming from legal betting companies, which should be used to equip the Secretariat of Prizes and Betting with qualified personnel and enforcement technology, isn’t reaching its destination. We’ve tried to find out where those resources go. Everything is falling into a general Treasury account and isn’t being directed as intended. So, what do we have? A government that’s ineffective in enforcement and, at the same time, keeps raising taxes.
Will companies return to illegality?
The path the government is taking makes the legal product less attractive. At some point, players will prefer the higher return they get from illegal sites. That means revenue loss.
Is raising the tax then a way to restrict the activity in Brazil?
Yes. The government needs to choose between regulating and prohibiting. If it legalizes, it has to make the market at least viable. It makes no sense to allow it and then raise taxes to unsustainable levels. And legislators bring a misleading narrative — banning advertising and allowing it only at points of sale. But our activity has no point of sale; the product is digital. Who will reach my site if I can’t advertise?
Source: Folha
