The Brazilian government is grappling with new budgetary challenges following the collapse of Provisional Measure (MP) 1.303 earlier this week. The Chamber of Deputies’ inaction effectively thwarted a planned tax reform that sought to increase taxes on online betting, financial assets, and fintech companies. The lapse of this reform poses a potential financial gap of over BRL 50 billion ($9.2 billion) for the fiscal years of 2025 and 2026. Consequently, President Luiz Inácio Lula da Silva’s administration must now explore alternative strategies to balance the national budget.
In June, the Finance Ministry, spearheaded by Finance Minister Fernando Haddad, proposed significant tax amendments aimed at increasing the betting tax from 12% to 18%. This proposal also intended to broaden the tax base to include fintech companies and revise income tax rules for investments. Additionally, it proposed restrictions on tax offsets and suggested allocating the “pé-de-meia” student savings program within the national education budget. However, the failure to secure a vote on these measures means that the existing tax rates and regulations remain unchanged.
Minister Haddad emphasized the importance of this reform to ensure equitable tax distribution across sectors and to curb what he described as “abusive compensations” by corporations. News outlet G1 reported his remarks, noting Haddad’s commitment to devising new proposals for President Lula’s consideration. Among the alternatives being considered are reductions in tax breaks and the introduction of new taxes to recoup the anticipated revenue from the lapsed measure.
With the expiration of the measure, betting companies continue to be taxed at the existing 12% rate on their gross gaming revenue, rather than the proposed 18%. Furthermore, a temporary provision that would have taxed international money transfers by betting firms was not implemented, sparing the industry from approximately BRL 5 billion ($929.6 million) in retroactive taxes.
President Lula expressed his disappointment, labeling the lapse of the MP as “a defeat for the Brazilian people,” stressing that it was intended to correct disparities by increasing contributions from wealthier sectors.
This outcome has prompted mixed reactions across various sectors. Business groups and industry associations welcomed the decision. The National Confederation of Industry (CNI) praised Congress for avoiding measures that would have increased costs for all citizens. Similarly, the Brazilian Association of Crypto Economy (ABCripto) considered the outcome a victory for regulatory balance and open dialogue.
In a swift counteraction, the Workers’ Party (PT) sought to salvage elements of the initial plan. On Thursday night, PT lawmakers introduced a bill proposing to raise the betting tax to 24%, effectively doubling the current rate. The additional revenue would be allocated to support social security, with proponents arguing that the increase would safeguard public health by mitigating the impact of gambling on household finances.
Political analysts interpret this episode as a sign of emerging divisions within President Lula’s administration. In a last-minute move, Rapporteur Carlos Zarattini altered the MP, substituting the betting tax hike with a plan to tax historical earnings. This adjustment provoked strong reactions from both allies and opponents, contributing to the measure’s downfall and leaving Brazil’s nascent betting market in a state of flux.
The debate surrounding the taxation of the betting industry underscores broader economic concerns in Brazil. On one hand, there is a pressing need to generate additional revenue to fund public services and investment in infrastructure. On the other, there is a call from industry stakeholders for a more predictable regulatory environment that supports growth and innovation.
Critics of the proposed tax reforms argue that higher taxes could stifle the burgeoning online gaming sector, potentially driving operators to seek more favorable jurisdictions. They caution that such a move might ultimately reduce the industry’s contribution to the national economy.
Conversely, supporters of increased taxation argue that the gambling industry, given its rapid growth and profitability, should contribute a fairer share to the public coffers. They assert that this would help address fiscal imbalances and support essential public services.
As the debate continues, the government faces the challenge of balancing these competing interests while ensuring fiscal stability. The outcome of this ongoing discussion will likely have significant implications for Brazil’s economic policy and the development of its betting market in the coming years.
Garry Sputnim is a seasoned journalist and storyteller with over a decade of experience in the trenches of global news. With a keen eye for uncovering stories that resonate, Alex has reported from over 30 countries, bringing light to untold narratives and the human faces behind the headlines. Specializing in investigative journalism, Garry has a knack for technology and social justice issues, weaving compelling narratives that bridge tech and humanity. Outside the newsroom, Garry is an avid rock climber and podcast host, exploring stories of resilience and innovation.
