Brazilian Gambling Sector Faces Uncertainty as Congress May Block Controversial Tax Hike

As Brazil’s online gambling market finds its footing following a successful launch in January, the industry is now staring down the possibility of a 50% increase in taxation—an abrupt policy shift that has sparked fierce debate and left operators scrambling for clarity.

João Rafael Gandara, a leading tax lawyer at Pinheiro Neto Advogados, believes Congress could ultimately save the sector from what many consider a potentially damaging move.

On 3 June, the federal government enacted a provisional measure increasing the gross gaming revenue (GGR) tax from 12% to 18% for all gambling operators, citing the need to plug a BRL 20 billion deficit. While the policy took immediate legal effect, its future remains murky: it must be ratified by Congress within 60 days, with a possible extension to 120 days.

Should it fail to gain approval, any tax collected from the 90-day enforcement mark must be reimbursed to operators.

“It may not even pass,” Gandara said, pointing out that “the sector could leverage the Congress’ recent pushback against broad tax hikes in the country.”

The increase comes amid growing political and societal resistance to the gambling sector, with opposition surfacing from trade unions, political factions, and financial institutions. President Luiz Inácio Lula da Silva has publicly defended the measure, asserting that gambling operators are under-contributing to state revenue.

“Gambling is a new industry and they’re getting a regular income, they’re not the villains of the story,” Gandara explained, arguing that the government is unfairly targeting a sector still in its infancy.

This is not the first time the Lula administration has attempted a controversial tax hike. In late May, the government proposed raising the financial transactions tax (IOF) from 0.38% to 3.5%. The IOF, a significant contributor to Brazil’s tax base, applies to a range of foreign financial dealings, from loans to insurance and investments. That proposal met with immediate backlash in Congress and was quickly abandoned.

Despite shelving the IOF hike, the administration has redirected its fiscal ambitions toward the gambling sector, hoping to extract enough revenue to meet deficit-reduction goals ahead of next year’s election. Other sectors, such as agriculture, have also been earmarked for increased taxation.

However, Gandara points to recent political dynamics as a reason for optimism. Congress has shown a growing willingness to resist executive overreach on fiscal matters.

“We had a recent precedent within the last year where the president of the Congress immediately returned [a policy], saying ‘this has no chance of going through and I won’t even start the legal proceedings, so we will immediately reject this provisional measure,’” Gandara recalled.

That particular case involved a provisional measure that sought to limit the use of tax credits and end cash reimbursements of presumed credits—a policy that never made it to the legislative floor due to swift congressional opposition.

Further signs of congressional resistance appeared last week when the Chamber of Deputies granted urgent status to a bill that would nullify the government’s now-defunct IOF decree. The move bypasses committee deliberations and fast-tracks the bill to a full vote, signaling deep dissatisfaction with the administration’s tax agenda.

“This is a fresh indicator the Congress does not support the government’s tax increase efforts to try and reduce its deficit,” Gandara noted.

In his view, the Lula government is opting for the path of least political resistance by targeting emerging sectors like gambling rather than tackling deeply rooted budgetary inefficiencies.

“I think across the whole world, like in the US and Europe, governments are cutting expenses,” Gandara said. “The other [option] is to raise taxes. The government needs to cut from expenses and they know it’s a hard discussion [to have], so they avoid it and they are really targeting whomever they can.”

Gandara further argues that a coordinated, well-structured response from the gambling industry could sway lawmakers and halt the policy’s progress.

“Taxes are really a hot topic and I think the government will have a very hard time convincing the Congress,” he said. “So maybe if there is a really well organised strategy, explaining to the Congress that this type of taxation can really harm the sector and wider government strategy, maybe they can get the policy rejected.”

He also invoked the economic principle of the Laffer Curve to warn against over-taxation. This theory posits that beyond a certain point, increased taxation leads to diminishing returns, as businesses flee or consumers turn to black market alternatives.

“There’s an optimal point,” Gandara said. “If you push [beyond] that, you are no longer collecting taxes because either companies have left the country, or everyone is in the black market.”

Rather than scaring off investment and fueling illegal betting operations, Gandara says the government should work to present a sustainable tax structure that fosters long-term growth.

“What the government should be doing is the opposite, presenting a reasonable tax so they have this optimal collection and you have other companies coming into the market,” he concluded.

With a 120-day countdown now underway and a politically unpredictable Congress at the helm, Brazil’s gambling sector is entering a critical phase. Whether the industry can mobilize effectively and whether lawmakers will stand firm against executive pressure could determine the future trajectory of one of the country’s most promising new markets.

By fLEXI tEAM