The tax plan for Brazil’s ‘Bets’ gambling market has been left in limbo, as ministers reject changes to apply a retroactive tax framework instead of an increase in standard income taxes.

With less than 24 hours to review the proposal of retroactive tax framework endorsed by rapporteur Carlos Zarattini of the governing Workers Party (PT), the Chamber of Deputies voted down Provisional Measure (MP) No. 1,303/2025 with 251 votes against.

This is an embarrassing conclusion to 120 days of deliberation on the next fiscal phase of Brazil’s regulated betting market. If approved, tax on gross gaming revenues (GGR) would have risen from 12% to 18%.

The measure failed to complete any necessary stages for submission to President Luiz Inácio Lula da Silva for approval – but the President still seems determined to see gaming tax raised.

The outcome has angered PT ministers and senators, many of whom blamed Zarattini’s last-minute budget revisions for derailing the government’s end-of-year fiscal strategy.

Local media described a “backdrop of infighting” across political ranks over how additional taxes should be applied to betting companies.

Zarattini defended his proposal to attach betting licences to a new retroactive taxation model, branded “Litígio Zero Bets” (Zero Litigation Bets).

The scheme called for voluntary adherence by licensed operators, requiring them to pay 15% income tax on past revenues, alongside a 100% fine, with all accounts to be settled within a 90-day compliance period.

However, the rapporteur claims that his plan was abandoned by allied parties of PP, Republicans, União Brasil and PSD despite prior agreements made to ensure its approval.

Blame Game…

In the spotlight, Zarattini immediately blamed the Republican bloc of congress for working against the MP, accusing São Paulo Governor Tarcísio de Freitas (Republicans) of reversing his stance to derail the measure for political gain.

“Tarcísio, instead of governing São Paulo, keeps calling deputies to pressure them not to approve it. It’s obvious there’s an election campaign under way,” Zarattini said, as reported by Folha.

Headlines are dominated by rumours of rifts within the PT and a furious Finance Minister, Fernando Haddad, whose plan to raise income tax on Bets licences from 12% to 18% was overturned by Zarattini’s retroactive proposal — a measure previously thought to be set in stone.

Haddad’s frustration reflects growing concern within the Finance Ministry that the government’s 2026 fiscal targets are now at risk, with the collapse of the MP leaving a R$20.9bn hole in projected revenues – as PT government is yet to have its Budget 2026 approved.

Attention now turns to President Lula, as to who will carry the can for the fiasco. Yesterday, three PT ministers — André Fufuca (Sports), Celso Sabino (Tourism), and Silvio Costa Filho (Ports) — were temporarily dismissed for refusing to support the MP, but have since been reinstated.

With just a year until Brazil’s general elections in November 2026, the political acumen of Lula and his PT strategists will be scrutinised over how the President misread congressional blocs and failed to secure backing for his key fiscal measure.

Not out the woods yet

Facing a time-crisis Finance Minister Haddad is said to be weighing a freeze of R$7–10bn in parliamentary amendments — funds that legislators use to bankroll pet projects in their constituencies.

The move would serve both as fiscal triage and political retribution for the government’s bruising defeat.

For now Brazil’s operators can breathe a sigh of relief as amid near constant talks of tax hikes and rising costs from Europe to the Americas, the country seems to have bucked the trend and shelved what looked like an inevitable increase in taxes – at least for now.

President Lula appears committed to increasing taxes on the market his government launched, while the Ministry of Finance is already looking at other ways to raise taxes to achieve its 2026 revenue targets.

The Finance Ministry is considering the use of executive decrees to adjust tax rates under existing instruments such as the IOF, a levy on financial transactions, and the IPI, a tax on industrial products. Such manoeuvres would allow Brasília to shore up its 2026 revenue targets while circumventing a hostile Congress.

“There are several things that can be done by decree,” said Zarattini. “There are tax rate definitions that don’t require a law, such as IPI, IOF, and others. The Supreme Court recognized that the government has the autonomy to increase or decrease the IOF rate and doesn’t have to consult Congress.”

Meanwhile, conversations continue around other contentious talking points relating to the gambling sector. Advertising and marketing have unsurprisingly been placed in the political firing line with discourse at both the national and regional level.

Plínio Lemos Jorge, President of the National Association of Games and Lotteries (ANJL), backed the withdrawal of the proposed tax increases, warning that higher rates would discourage investment and invite legal challenges.

“Altering conditions already established allows for judicial contestation, since the economic and financial balance of contracts is no longer maintained as planned. Raising taxes would impact the entry of new operators into the regulated betting market and, consequently, reduce the government’s own revenue potential,” he said.

With just three months left in the Bets regime’s inaugural year, licence holders have been warned about renewed political scrutiny on a framework that remains unfinished. 

Anxieties will remain on taxation, advertising restrictions, and new compliance demands. As the government and political blocs recalibrate the fiscal agenda around gambling, the sector has been told to brace for a turbulent end to the year.