Since January, the online betting market has been operating under a new regulatory framework in Brazil, with the entry into force of the rules governing the sector. More than 100 companies are authorized to operate the fixed-odds lottery betting modality in Brazil. The expectation is that Brazil will establish itself as the 3rd largest market in the world in this sector, with annual revenue of R$ 20 billion (US$3.6bn).
However, this regulation brings fiscal challenges, especially in light of the high tax burden and interpretative gaps that hinder the proper taxation of the activity.
Currently, the sector is taxed at 12% on the Gross Gaming Revenue (GGR); 34% of Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) on the operators' profit; 9.25% of PIS and Cofins on gross revenue; and between 2% to 5% of ISS (municipal service tax) on the service price, in addition to monthly supervisory fees.
Recently, the Executive Branch issued Provisional Measure (MP) No. 1,303/2025, which provides for an increase in the GGR tax rate from 12% to 18%, potentially raising the total tax burden on the activity to over 60% of the GGR.
In this context, a relevant issue concerns the calculation basis for PIS, Cofins, and ISS, especially considering the amounts that should be deducted from the tax base, as they do not represent an effective and definitive patrimonial increase.
Regarding PIS and Cofins, the concept of revenue has already generated much controversy, with landmark rulings by the Brazilian Supreme Court (STF), where gross revenue was understood as the financial inflow that integrates the patrimony as a new and positive element.
Thus, the tax definition of revenue is directly related to the activities carried out by the operator, requiring a definitive, available inflow of resources belonging to the legal entity, and not to third parties.
One of the points with the potential to generate tax controversies is the legal nature of incentives granted to bettors, such as bonuses linked to deposited amounts, initial amounts in accumulated prizes, and free bets. It is essential to analyze the nature of these incentives to avoid taxation of amounts that do not represent a patrimonial increase.
Another discussion involves the calculation basis of the ISS, as it is levied on the price of services, considered the gross revenue arising from service provision activities. However, there is no fee charged to bettors for using the platforms, which is why the service price tends to be the operator's gross revenue.
Therefore, in theory, all exclusions and deductions applied to the PIS and Cofins calculation base should also apply to the ISS. On this matter, the Municipality of São Paulo has already ruled that all amounts to be passed on to third parties should be excluded from the ISS base.
The tax reform established two taxes on transactions involving goods and services (IBS and CBS) with broad bases, in addition to the selective tax (IS). For games of chance, there is a provision for a specific regime where the tax base is the "entity's own revenue from this activity," with deductions for "prizes paid" and "mandatory allocations by law."
Thus, taxation remains on the operator's effective revenue, limited to the amount obtained as a counterpart to the bet. Incentives granted that do not represent collected revenue should be excluded from the tax base.
Regarding the IS (selective tax), controversies are even greater. Games of chance are legally qualified as "public services," which raises doubts since, according to the Federal Constitution, this tax should only be levied on the "production," "extraction," "commercialization" of goods, and the "importation" of "goods and services" that cause "harm to health or the environment."
It is debatable what direct causal relationship exists between betting and "harm to health or the environment." Playing the lottery or placing a bet on a betting site does not, ipso facto, cause harm to one’s health.
There is a certain clamor for high taxation on this activity. However, regulators should not ignore the fact that excessive taxation could inhibit the development of the regulated gaming market, reducing the value of prizes paid and making illegal gambling more attractive.
A recent survey by Instituto Locomotiva and LCA Consultoria Econômica showed that between 41% and 51% of the Brazilian betting market operates illegally, generating an annual loss of over R$ 10 billion (US$1.8bn) in tax revenue. The authorities' goal should be to maintain a balanced level of taxation that increases the channeling rate to the legal betting market, as occurs in the United States and the United Kingdom—successful examples of regulated gaming.
A balanced tax system with clear rules is essential to encourage regulated gaming, provide legal certainty, and ensure economic viability. After all, luck and chance should be limited to the game itself, not the interpretation of the tax rules. Otherwise, the house loses—and so does the country.
João Rafael Gândara
Partner at Pinheiro Neto Advogados
Maria Eduarda de Andrade
Associate at Pinheiro Neto Advogados
