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IBJR criticizes new tax rules on Brazilian bettors’ winnings introduced by Federal Revenue Service

By - 13 May 2024

The Brazilian Institute of Responsible Gaming (IBJR) has issued a statement criticising the way bettors’ winnings could be taxed under new rules published by The Federal Revenue Service of Brazil (RFB).

Last week the RFB introduced a new regulation (Normative Instruction RFB No. 2,191/2024) concerning the taxation of net prizes earned from sports betting, which includes fixed-odds betting and online games. As per the new regulation, prizes from lotteries, which encompass fixed-odds sports betting, are exempt from income tax up to R$2,259.20 – the initial tier of the monthly Income Tax on Individuals (IRPF).

However net prizes from fixed-odds sports bets exceeding this amount will be subject to a 15% withholding tax. The operator will be responsible for assessing and collecting this tax. In addition the net prize is considered to be the difference between the value of the prize and the amount bet, determined for each bet, after the end of a real sports-themed event, or for each session of a virtual online gaming event. Crucially losses incurred in other bets or sessions are non-deductible. Furthermore the regulations were published before President Lula’s vetoes on bettors winnings were decided upon in Congress.   

In a statement the IBJR stated that the new rules had been met with considerable concern.

“Despite being armed with studies and aware of successful (and unsuccessful) examples in other jurisdictions, the Federal Government unfortunately chose to approve a tax model for the fixed odds betting industry that is not only legally questionable, but also harmful to consumers and the nascent regulated betting market in Brazil.

“Last December, Law 14.790/23, which regulated fixed odds betting, was enacted, providing in its article 31 that net winnings obtained in fixed odds bets would be taxed at a rate of 15% by the Personal Income Tax (IRPF). However, the Executive Branch, through a presidential veto, chose to remove from the bill debated and approved by the National Congress exactly the provisions that (i) defined the net prize mentioned in this article as the positive result obtained by bettors in bets each year, after deducting losses incurred with bets of the same nature in the same period; and (ii) established the mechanics of annual tax payment.

“With the presidential veto, therefore, a gap was opened in the newly approved law regarding the definition of the “net prize” indicated in article 31 of the law, as well as the form of payment of the tax on it and the period of assessment.

“Today, months after the presidential veto, the Executive Branch, this time through a regulation of the Federal Revenue Service, set a restrictive concept of “net prize”, expressly prohibiting the offsetting of losses. “Net prize” will be considered the difference between the amount bet and the prize received in each individual bet (for sports-themed events) or session (for virtual online gaming events) considered.

“In other words, the taxation will fall on the prizes obtained in each individual bet or game session, expressly prohibiting the offsetting of losses in other events of the same nature.”

According to the IBJR the new tax will lead to the encouragement of the informal market and may frustrate the Brazilian Government’s expectation of “channelling the fixed odds betting market, replicating bad precedents from abroad, and reducing the amount of resources destined for public coffers, including for the implementation of sports integrity policies, responsible gambling promotion, combating match-fixing, money laundering, and gambling addiction.”

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