The Brazilian Association of Fantasy Sports (ABFS) is closely monitoring the text of the Tax Reform (PEC No. 45/2019), currently under discussion in the National Congress. The entity believes the proposal poses real risks of a significantly high tax burden increase for the service sector.
This equation was necessary so that, in theory, the current text does not lead to an increase in the overall tax burden. And this directly impacts the electronic games sector. Approved on July 7 by the Chamber of Deputies with government support, the Proposed Amendment to the Constitution 45/2019 began its proceedings in the Senate and is being reported by Senator Eduardo Braga (MDB-AM).
The Association understands the need for debate to approve such an important PEC. According to ABFS president, Rafael Marcondes, under the proposal currently under review by the Senate, the maximum rate of the Value Added Tax, VAT, would be 25%. With the exceptions included in the Chamber, the expectation, according to IPEA, is that this rate could reach 28%.
As the ISS charged by municipalities varies from 2% to 5%, and PIS and COFINS have rates that, combined, amount to 9.25%, their total fluctuates between 11.25% to 14.25% of revenue. “In practice, this means that the tax burden on the sector would practically double, impacting the generation of new jobs and the capacity for new investments in a promising market, which could grow up to 120% over the next three years,” he explains.
"The way it is, the reform goes against the Legal Framework of Games (PL No. 2.796/2021), which is under discussion in the Senate, and which seeks to stimulate the growth of the sector and provide more transparency and legal security, thus attracting new investments. It is useless to have security in a sector suffocated by an exorbitant tax burden", he emphasizes.
This scenario could be detrimental for a sector composed of small companies, many of them with little working capital and dependent on financing to ensure their own sustainability. These are companies, mostly created and composed by young entrepreneurs, who need encouragement to establish, firm up, and develop.
The situation could worsen if games, which are not only entertainment tools but also for education, personnel training, and health treatment support, are not considered essential activities. In this case, the Selective Tax (IS) would also apply, greatly jeopardizing the segment.
The ABFS proposes other measures that could mitigate these impacts:
- A recalibration of rates for the service sector (games), especially electronic sports, by including the category in the differentiated regime created for sports, and recognizing the relevance (essentiality) of this market for all Brazilians;
- A process of payroll tax relief for the service sector, stimulating hiring and attracting qualified labor for an extremely dynamic and innovative market, dependent on research in science and technology; and
- An administrative reform that makes the State more efficient and less bloated, qualifying public spending. In this way, the need to increase the tax burden is eliminated, allowing for sustainable economic growth.
Source: GMB
