Earlier this month, the Special Secretariat of Federal Revenue of Brazil’s Ministry of Finance published Normative Ordinance No 2,191 in the Diário Oficial da União (Official Diary of the Union), which establishes a new tax framework for the gaming industry in Brazil. Prior to this normative regulation, the Special Department of Federal Revenue of Brazil (Receita Federal do Brasil, RFB) had already announced the imposition of a personal income tax (IRPF) on gaming, and therefore, this new regulation further elaborates on the specific tax policy.

The Brazilian government has been active in establishing complete gaming regulations recently, and on December 21, 2023, the country passed a legislation regulating sports betting and video games. Luiz Inácio Lula da Silva, the current president of Brazil, signed Bill No. 3,626/2023 at the end of last December, officially bringing it into the legal system.

According to a decision of the Economic Affairs Commission last November, Brazil will impose a 15% personal income tax on gaming. However, the tax will only apply to net winnings of more than R$2,824. The tax will be withheld at the time the winnings are paid, meaning that players will be taxed before they receive their winnings. Gaming operators will be responsible for the calculation and collection of such tax.

Tax Coverage and Calculation

Under these new regulations, the net winnings are defined as the difference between the winnings minus the amount wagered for each sports event or each online gaming session. However, the player’s losses will not be included in the deduction. This means that a player will be taxed on all winnings even though their gross in-game earnings may be in the red.

Reactions and Concerns of the Gaming Industry

The Brazilian Institute for Responsible Gaming (Instituto Brasileiro de Jogo Responsável, IBJR) has expressed strong opposition to the new tax policy. The IBJR argued that the new tax framework “will jeopardize the development of the gaming industry and remains legally questionable.” The IBJR stated, “The policy of requiring a separate tax on winnings and not allowing losses to be deducted, which would subject bettors who have actually lost money to tax, is unconstitutional and negatively affects consumers.”

The institute also warned that this law could jeopardize all the efforts made by Brazil’s National Congress and the Prizes and Betting Secretariat to regulate the market. They argue that the goal of the regulation should be to achieve positive behavior that encourages operators and bettors, which in turn contributes to tax revenues.

A New Level of Regulation is on the Horizon

Brazil is currently rolling out its gaming regulation policies in four stages. Lawyer Regis Dudena was appointed head of policy regulation at the Prizes and Betting Secretariat (SPA) in April and is leading the process. 

To date, the published ordinances include Normative Ordinance No. 615, which prohibits operators from accepting credit card or cryptocurrency payments. In addition, Normative Ordinance No. 722 regulates data centers located outside of Brazil, requiring these countries to sign an international legal cooperation agreement with Brazil.

Brazil plans to fully promulgate its regulatory policies by the end of July, with the third stage of regulations covering advertisements and video games, and the fourth stage focusing on how the tax revenue generated will be used for socially responsible causes. The gaming industry is keeping a watchful eye on the future development of these regulations, hoping for a more constructive regulatory framework that will facilitate the healthy development of the market.