The Joint Commission of the Brazilian Congress adopted yesterday a bill on the retroactive taxation of licensed lottery operators, requiring enterprises to pay the tax for the first lottery operation to be traced back to 2014.
Before the vote, the initial provision in the bill to increase the gross proceeds tax rate to 18 per cent was urgently deleted. The Government expects to raise about R$5 billion (approximately $560 million) through this retroactive tax scheme, equivalent to three years of fiscal revenue at an 18 per cent rate. The reporter of the bill, Carlos Zaratini, submitted key amendments before the voting, which, in addition to the elimination of the tax increase scheme, created the Special Tax Compliance Plan for the Zero Dispute Lottery Assets, which was designed to retroactively tax the operations of the operator prior to the formalization of the market on 1 January of this year. Under the scheme, a 15 per cent tax rate and a 15 per cent fine will be applied for the period from 2014 to 2024. In an interview with IGB, the Brazilian gaming industry expert, Vis Lorenzo, explained that this meant that the operator was required to pay 15 per cent of the income tax on the value of all online gaming assets held between 2014 and 31 December 2023, and that the actual gross tax would amount to 30 per cent because of an equivalent fine for operating in the grey market.
The scheme is based on the principle of voluntary participation, and licensed operators may join by means of asset resource declarations within 90 days of the publication of the text of the bill. Zaratini stated that the aim was to “recover the money that had not been collected during the previous administration”. The head of the Brazilian law firm Bichara e Motta gaming and encryption currency business, Udo Sekelman, stated that participation in the scheme could provide legal certainty to operators and avoid a prolonged tax dispute with the Government. “Voluntary participation can limit future responsibilities, demonstrate good faith to regulators and stabilize business relations. However, many operators may question the reasonableness of retroactive taxation, as they are subject to very different fiscal rules when entering the market.” According to Lorenzo, while the scheme provides the operator with the means to legalize historical assets, enterprises that consider the retroactive taxation unconstitutional may choose to sue instead of join the scheme. At the same time, he warned that the proposal remained variable and might face a different outcome, such as adoption, amendment or total failure.
While the elimination of tax increases is good news for operators, there are concerns about the non-disclosure of assets by businesses that have operated before market regulation. Sekelman pointed out that retroactive taxation could weaken legal certainty and investor confidence and that “fair and forward-looking regulation would be more beneficial for Brazil to regulate the development of the lottery market”. Lorenzo, for his part, considered that the amendment brought “a clearer expectation” for the market, as a way for profit operators to obtain clarity about their historical responsibilities, while the loss was limited by the lack of a tax base, while unconstitutional enterprises retained their right to sue. Sekelman suggested that, if the bill was finally adopted, the industry should be actively involved in public discussions, assess the impact of the tax and prepare for the case.