BTG Pactual Global Research

Banco BTG Pactual S.A.

Strategy Note
Brazil Strategy 13 December 2022

Analysts
Corporate impact of dividend tax and end of IoE
Carlos Sequeira, CFA
New York – BTG Pactual US Capital LLC
Taxing dividends and ending IoE could increase government income carlos.sequeira@btgpactual.com
With the end of the electoral cycle, the newly elected Lula administration began +1 646 924 2479
discussions to adjust the 2023 budget and propose a new fiscal framework in order to
substitute the spending cap rule, approved back in 2016. With the new government Osni Carfi
Brazil – Banco BTG Pactual S.A.
indicating it plans to materially increase expenses, especially to beef up social osni.carfi@btgpactual.com
programs, discussions on how to fund them should be on top of the policy agenda. +55 11 3383 2634
One way to increase government income would be taxing dividends and ending the
tax break generated by interest on equity (IoE) payments. Guilherme Guttilla
Brazil – Banco BTG Pactual S.A.
guilherme.guttilla@btgpactual.com
Impact on corporates and their shareholders could be relevant +55 11 3383 9684
We ran two exercises with 140 Brazilian companies to better understand the impacts
of these potential changes on the companies we cover: i) 15% tax on dividends, end
of IoE, and no reduction in corporate income tax; and ii) same hypotheses as the
previous scenario, but with a 5p.p. reduction in corporate income tax. We also
assume companies won’t change their current dividend payouts or capital structures.
We ran both scenarios for 2023 and 2024 expected earnings, but we consider it
extremely unlikely that the potential reform would take effect in 2023 (more on that
below).

Banks, Telecoms and Ambev to suffer most

Companies that are heavy IoE payers, like banks and telcos, would suffer the most. In
the first scenario (15% dividend tax, end of IoE, without any offset), both sectors
would experience a 17% drop in their 2024 earnings. Meanwhile, the second scenario
(15% dividend tax, end of IoE and 5p.p. reduction in tax rate) would drive down
earnings by 10%. Ambev, also a heavy payer of IoE, would suffer from this type of
legislation. Stocks that are seen by investors as bond proxies may also be penalized,
as dividends would lose competitiveness vs. bond yields – Utilities could fall into this
group.

Earnings would grow for those not paying IoE, but dividends would fall
In general, companies that don’t make IoE payments should see their earnings
increase if the government reduces the tax rate. Considering our second scenario
(incl. a tax cut of 5p.p.), we estimate earnings for general retail, internet providers
(ISPs) and food companies would increase 6-7% in 2024. Still, even though some
companies will see their earnings go up, their shareholders will probably receive fewer
dividends.

Side effects: Increased stock buybacks and leverage; more earnings

reinvested
One side effect of the potential legislation is that companies may choose to prioritize
share buybacks instead of cash distribution. We could also see companies, especially
those with inefficient capital structures, leveraging up their balance sheets in order to
reduce their taxable income. Finally, a dividend tax could lead companies to reduce
their dividend payouts and re-invest bigger chunks of their earnings (or maybe
increase their appetites for M&As).

ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 10

Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could
affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Any U.S. person receiving this report and wishing to effect any
transaction in a security discussed in this report should do so with BTG Pactual US Capital, LLC at 212-293-4600, 601 Lexington Avenue. 57th Floor, New York NY 10022
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Corporate impact of dividend tax and end of IoE

With the end of the electoral cycle, the newly elected Lula administration began
discussions to adjust the 2023 budget and propose a new fiscal framework in order to
substitute the spending cap rule, approved back in 2016. With the new government
indicating it plans to materially increase expenses, especially to beef up social
programs, discussions on how to fund them should be on top of the policy agenda.

The proposed 2023 spending cap “waiver” currently being discussed in Congress is
likely to total 1.6-2.0% of GDP and lead to a sizable primary deficit next year (down
from a 1.3% surplus forecasted for 2022, see our December 10SIM). If the draft bill
voted and approved in the Senate is also approved in the Lower House, debt-to-GDP
simulations are likely to point to a significant increase over the next few years, with
gross debt reaching 89% of GDP at the end of the new government’s mandate (up
from 74% at YE22).

To avoid deterioration in risk premia, an increase in real interest rates, and a worse
growth/inflation combo, not to mention potential credit-rating downgrades along the
way, the new administration will likely need to find offsets to finance more spending,
making revenue measures a must.

One way to increase government income would be taxing dividends (something

discussed for years) and ending the tax breaks generated by interest on equity (IoE)
payments. BTG Pactual's macroeconomics team estimates that a potential 15% tax
on corporate dividends combined with the end of IoE would increase government
revenues by R$47-61bn in 2023 and R$50-65bn in 2024. The range relates to the
fact that the amount of dividends distributed by companies would probably decrease
if a tax were created.

It is important to highlight that higher revenues will not fix the breach of the spending
cap and open up room for more social programs, as under the current legislation, this
would only be possible by reducing expenses (at least while the spending cap rule is
in place). However, with the growing demand to increase expenditures, higher taxes
would be the most likely way for the government to counteract the upward trajectory
of Brazil’s debt-to-GDP ratio.

To minimize the negative market reaction related to taxing dividends and ending IoE,
the government could potentially propose an offset in the new legislation. Throughout
the report, we will analyze the impact on companies in two possible scenarios, with
the first considering only dividend taxation and the end of IoE, and the second adding
an offset via a 5p.p. reduction in corporate income tax (falling from 25% to 20%, or
34% to 29% considering the CSLL tax).

Interestingly, if the decrease in corporate income tax is in effect implemented, even if

only 5p.p., the impact on government revenues of the described changes to taxation
would be negative, according to our conservative estimates (-R$5.0bn in 2023 and -
R$5.4bn in 2024). In our more optimistic scenario, the combined impact of a 15%
dividend tax, end of IoE and a 5p.p. reduction in corporate taxes, would be of
increasing government revenues +R$9.3bn in 2023 and +R$9.8bn in 2024.

In our view, with the deterioration in fiscal policy, scenarios in which the increase in
the tax burden is neutral will probably not work. So, to finance these extra expenses
and slow the trajectory of public debt, the tax burden will likely have to rise.

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Table 1: Fiscal space created by taxing dividends and Table 2: Fiscal space created by taxing dividends and
ending IoE (for 2023) ending IoE (for 2024)
Conservative assumptions Optimistic assumptions Conservative assumptions Optimistic assumptions
Dividends (15%) 32.1 46.4 Dividends (15%) 34.2 49.4
IoE (ending) 14.5 14.5 IoE (ending) 15.4 15.4
Total 46.6 60.9 Total 49.6 64.8
Income tax (-5%) (51.6) (51.6) Income tax (-5%) (55.0) (55.0)
Total (5.0) 9.3 Total (5.4) 9.8
Source: BTG Pactual estimates Source: BTG Pactual estimates

Impact of lower corporate income tax, no IoE, and dividend

taxation
We ran two exercises with 140 Brazilian companies to better understand the impacts
of these changes on the companies we cover.

Since we don't know exactly what reform the new government will seek, we decided
to run the analysis considering two possible scenarios:

i. Worst case scenario: 15% tax on dividends, end of IoE, and no reduction in
corporate income tax.

ii. Same hypotheses as the previous scenario, but with an offset via a 5p.p.
reduction in income tax.

We also assume companies won’t change their current dividend payout policies (i.e.,
companies paying 100% of net income in dividends will continue doing so) or capital
structures. We then compared our earnings estimates pre- and post-tax changes.

We ran both scenarios for 2023 and 2024 expected earnings, but we consider it
extremely unlikely that the potential reform would take effect in 2023.

According to the Federal Constitution, the government cannot levy taxes in the same
financial year in which the law that created them was enacted. Thus, for a tax on
dividends and the end of IoE to be implemented next year, the government would
have to pass the new law in both houses of Congress by December of this year,
something we consider very unlikely, if not impossible.

Banks, telecoms, and Ambev to suffer most

Companies that are heavy IoE payers, like banks and telcos, would suffer the most.
Their effective tax rates would go up, and their earnings would fall. In the first
scenario (15% tax on dividends, end of IoE without any offset), both sectors would
experience a drop of 17% in their 2024 consolidated earnings. Meanwhile, the
second scenario (15% tax on dividends, 5p.p. reduction in corporate income tax and
end of IoE) would drive down earnings by 10%.

Ambev is another heavy IoE payer that would suffer from this kind of legislation.
Assuming the company doesn’t change its capital structure, the negative impact on
2024E earnings could reach 23% in the worst-case scenario and 18% considering
a tax cut of 5p.p.

Interestingly, our estimates point to consolidated earnings barely changing in the

second scenario (down only 1%). The negative impact of the end of the IoE tax break

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would be almost entirely offset by the lower corporate income tax rate (naturally, the
impact varies significantly across sectors). On the other hand, in our worst-case
scenario, consolidated earnings would drop 8%.

Chart 1: Scenario 1 (end of IoE and same tax rate) – Chart 2: Scenario 2 (5p.p. tax cut + end of IoE) -
Negatively impacted sectors Negatively impacted sectors

Source: BTG Pactual estimates Source: BTG Pactual estimates

It is important to highlight that investors in companies that are big IoE payers are
already taxed at 15% when they receive these proceeds. So, the final impact of the
new legislation on investors’ proceeds from high IoE payers is not as high as it may
seem at first glance.

Earnings would grow for those not paying IoE, but post-tax dividends
would fall
On the other hand, in general, companies that do not make IoE payments should see
their earnings increase if the government reduces the corporate tax rate. Obviously,
no company would increase earnings in our worst-case scenario, as there is no offset
for the end of IoE.

Considering our second scenario (15% tax on dividends, tax cut of 5p.p. and end of
IoE), we estimate that earnings of general retail, internet providers (ISPs) and food
companies would increase 6-7% in 2024.

Chart 3: Scenario 2 (5p.p. tax cut + end of IoE) - Positively impacted

sectors

Source: BTG Pactual estimates

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Still, even though some companies will see their earnings increase, their
shareholders will probably receive fewer dividends (assuming payouts don’t change).
This is because the increase in earnings for those not paying IoE would not be
enough to offset the taxation of dividends.

Bond-like stocks may suffer, as they will lose competitiveness vs. bonds
Stocks that are seen by investors as bond proxies would also suffer more. Dividends
would be taxed, reducing their competitiveness vs. bond yields. We believe utilities
stocks, some telecom stocks, and Ambev, among others, may fall into this group.

Side effects: Increased stock buybacks and leverage; more

earnings reinvested
One possible side effect of this kind of new legislation is that companies may choose
to prioritize share buybacks instead of cash distributions. The acquired shares could
be cancelled and the share buyback would produce virtually the same effect to
shareholders as dividends would – except that some investors, especially those
looking for bond-like stocks, are really after the cash distributions.

Capital reductions could also be an option, as they work like dividend payments, but
with no taxes (although the government could also start taxing these).

We could also see companies, which in some cases operate with what some may
consider inefficient capital structures, leveraging up their balance sheets in a way to
take advantage of increased financial expenses to reduce their taxable income.

Finally, a dividend tax could lead companies to reduce their dividend payouts and re-
invest a bigger chunk of their earnings (or maybe increase their appetite for M&As).

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Appendix: Impact by sector and company

Table 3: Scenario 1 (end of IoE) – Summary by sector Table 4: Scenario 2 (5p.p. tax cut + end of IoE) -
Summary by sector
Effective tax rate (%) Net income (R$mn) Effective tax rate (%) Net income (R$mn)
2023 2024 2023 2024 2023 2024 2023 2024
Agribusiness +0.0 p.p. +0.0 p.p. 0.0% 0.0% Agribusiness (2.7)p.p. (2.7)p.p. 3.7% 3.7%
Apparel +0.0 p.p. +0.0 p.p. -8.0% -8.0% Apparel (1.0)p.p. (1.0)p.p. -3.2% -2.4%
Banks +11.4 p.p. +11.1 p.p. -17.6% -16.9% Banks +6.4 p.p. +6.1 p.p. -10.4% -9.5%
Beverages +24.8 p.p. +20.3 p.p. -26.3% -22.8% Beverages +20.8 p.p. +16.1 p.p. -22.1% -18.1%
Capital Goods +6.3 p.p. +6.2 p.p. -8.2% -8.4% Capital Goods +0.9 p.p. +1.2 p.p. -1.4% -1.4%
E-commerce +6.0 p.p. +6.0 p.p. -8.0% -9.0% E-commerce +1.0 p.p. +1.0 p.p. -1.3% -2.3%
Financials ex-Banks +0.0 p.p. +0.0 p.p. -4.7% -4.2% Financials ex-Banks (3.2)p.p. (3.3)p.p. 2.8% 3.4%
Food +0.0 p.p. +0.0 p.p. -0.3% -0.5% Food (3.7)p.p. (3.7)p.p. 6.3% 6.1%
Food Retail +0.7 p.p. +0.7 p.p. -4.0% -4.0% Food Retail (3.8)p.p. (3.8)p.p. 1.6% 1.8%
General Retail +0.0 p.p. +0.0 p.p. -0.1% -0.1% General Retail (5.0)p.p. (5.0)p.p. 6.6% 6.7%
Healthcare +5.5 p.p. +3.8 p.p. -6.7% -5.0% Healthcare +0.6 p.p. (0.6)p.p. -1.2% 0.8%
Infrastructure +0.0 p.p. +0.0 p.p. -1.1% -0.9% Infrastructure (5.0)p.p. (5.0)p.p. 7.0% 7.3%
ISPs +0.0 p.p. +0.0 p.p. 0.0% 0.0% ISPs (4.1)p.p. (5.0)p.p. 5.6% 6.3%
Logistics +3.5 p.p. +2.9 p.p. -4.9% -4.7% Logistics (1.5)p.p. (2.1)p.p. 2.2% 2.5%
Metals & Mining +0.0 p.p. +0.0 p.p. -7.4% -9.2% Metals & Mining (5.0)p.p. (5.0)p.p. -0.6% -2.0%
Oil & Gas +0.0 p.p. +1.0 p.p. -2.9% -3.0% Oil & Gas (4.0)p.p. (4.0)p.p. 4.6% 4.6%
Pharma +10.0 p.p. +10.0 p.p. -10.4% -9.6% Pharma +5.0 p.p. +5.0 p.p. -4.2% -3.1%
Pulp & Paper +0.0 p.p. +0.0 p.p. -2.9% -9.4% Pulp & Paper (5.0)p.p. (5.0)p.p. 4.7% -3.1%
Real Estate +0.0 p.p. +0.0 p.p. -2.7% -2.7% Real Estate (5.0)p.p. (4.7)p.p. 2.3% 2.7%
Rental +6.0 p.p. +6.0 p.p. -9.8% -9.3% Rental +0.9 p.p. +0.9 p.p. -2.9% -2.4%
Technology +5.0 p.p. +5.7 p.p. -8.6% -8.1% Technology +4.3 p.p. +3.9 p.p. -4.7% -3.6%
Telecom +15.8 p.p. +12.4 p.p. -18.4% -17.0% Telecom +10.8 p.p. +7.4 p.p. -12.1% -10.2%
Utilities +0.0 p.p. +0.0 p.p. -2.4% -1.7% Utilities (5.0)p.p. (3.0)p.p. 3.3% 3.3%
Consolidated -7.9% -8.0% Consolidated -0.9% -1.1%
Source: BTG Pactual estimates Source: BTG Pactual estimates

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Table 5: Impact by company (1/3)

5p.p. tax cut and no IoE Same tax rate and no IoE
Effective tax rate (%) Net income (R$mn) Effective tax rate (%) Net income (R$mn)
Company Ticker Sector 2023 2024 2023 2024 2023 2024 2023 2024
Bradesco BBDC4 Banks +9.1 p.p. +8.1 p.p. -12.9% -11.6% +14.1 p.p. +13.1 p.p. -20.0% -18.8%
Itau ITUB4 Banks +5.1 p.p. +5.0 p.p. -7.8% -7.7% +10.1 p.p. +10.0 p.p. -15.4% -15.4%
Banco do Brasil BBAS3 Banks +7.8 p.p. +7.6 p.p. -10.9% -10.9% +12.8 p.p. +12.6 p.p. -17.9% -18.0%
Santander SANB11 Banks +9.1 p.p. +7.1 p.p. -12.7% -10.5% +14.1 p.p. +12.1 p.p. -19.7% -17.9%
Banco ABC ABCB4 Banks +3.3 p.p. +4.5 p.p. -6.3% -8.6% +8.3 p.p. +9.5 p.p. -15.8% -18.0%
Banrisul BRSR6 Banks +8.5 p.p. +8.0 p.p. -11.3% -11.1% +13.5 p.p. +13.0 p.p. -18.0% -18.0%
Inter INBR32 Banks +3.1 p.p. +3.1 p.p. -4.3% -4.3% +8.1 p.p. +8.1 p.p. -11.3% -11.3%
Nubank NU Banks (5.0)p.p. (5.0)p.p. 6.6% 6.6% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Banks +6.4 p.p. +6.1 p.p. -10.4% -9.5% +11.4 p.p. +11.1 p.p. -17.6% -16.9%
Porto Seguro PSSA3 Financials ex-Banks +3.0 p.p. +2.7 p.p. -5.5% -4.9% +8.0 p.p. +7.7 p.p. -14.5% -13.9%
BB Seguridade BBSE3 Financials ex-Banks (3.2)p.p. (3.3)p.p. 7.7% 7.8% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
B3 B3SA3 Financials ex-Banks (0.0)p.p. (0.8)p.p. 0.1% 1.2% +5.0 p.p. +4.2 p.p. -7.0% -6.0%
BR Partners BRBI11 Financials ex-Banks (5.0)p.p. (5.0)p.p. 7.9% 7.8% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Cielo CIEL3 Financials ex-Banks +5.0 p.p. +5.0 p.p. -7.1% -7.1% +10.0 p.p. +10.0 p.p. -14.3% -14.3%
PagSeguro PAGS Financials ex-Banks (5.0)p.p. (5.0)p.p. 7.4% 7.5% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Stone STNE Financials ex-Banks (5.0)p.p. (5.0)p.p. 6.7% 7.3% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Financials ex-Banks (3.2)p.p. (3.3)p.p. 2.8% 3.4% +0.0 p.p. +0.0 p.p. -4.7% -4.2%
Telefônica Brasil VIVT3 Telecom +6.8 p.p. +7.3 p.p. -9.1% -10.1% +11.8 p.p. +12.3 p.p. -15.6% -17.0%
TIM Participações TIMS3 Telecom +14.8 p.p. +7.6 p.p. -17.8% -10.4% +19.8 p.p. +12.6 p.p. -23.7% -17.0%
Telecom +10.8 p.p. +7.4 p.p. -12.1% -10.2% +15.8 p.p. +12.4 p.p. -18.4% -17.0%
Brisanet BRIT3 ISPs (4.1)p.p. (5.0)p.p. 6.3% 8.3% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Unifique FIQE3 ISPs (5.0)p.p. (5.0)p.p. 7.9% 8.1% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Desktop DESK3 ISPs (2.7)p.p. (3.5)p.p. 3.4% 4.8% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
ISPs (4.1)p.p. (5.0)p.p. 5.6% 6.3% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Totvs TOTV3 Technology +5.3 p.p. +3.9 p.p. -7.4% -5.3% +10.0 p.p. +8.6 p.p. -13.5% -11.9%
Locaweb LWSA3 Technology (5.0)p.p. (5.0)p.p. 6.4% 6.9% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Intelbras INTB3 Technology +4.3 p.p. +4.4 p.p. -4.3% -4.8% +5.0 p.p. +5.7 p.p. -5.0% -6.1%
Technology +4.3 p.p. +3.9 p.p. -4.7% -3.6% +5.0 p.p. +5.7 p.p. -8.6% -8.1%
Vale VALE3 Metals & Mining (5.0)p.p. (5.0)p.p. 0.3% -1.2% +0.0 p.p. +0.0 p.p. -6.7% -8.6%
Gerdau GGBR4 Metals & Mining (5.0)p.p. (5.0)p.p. -4.3% -7.7% +0.0 p.p. +0.0 p.p. -10.9% -14.4%
CSN CSNA3 Metals & Mining (5.0)p.p. (5.0)p.p. -2.8% -1.7% +0.0 p.p. +0.0 p.p. -8.5% -8.5%
CMIN CMIN3 Metals & Mining (5.0)p.p. (5.0)p.p. -0.5% 0.1% +0.0 p.p. +0.0 p.p. -8.0% -7.5%
USIM USIM5 Metals & Mining (5.0)p.p. (5.0)p.p. -6.6% -8.3% +0.0 p.p. +0.0 p.p. -10.2% -10.2%
CBA CBAV3 Metals & Mining (5.0)p.p. (5.0)p.p. -0.6% -0.5% +0.0 p.p. +0.0 p.p. -8.5% -8.5%
Aura AURA33 Metals & Mining (5.0)p.p. (5.0)p.p. -0.6% -0.2% +0.0 p.p. +0.0 p.p. -6.8% -6.8%
Metals & Mining (5.0)p.p. (5.0)p.p. -0.6% -2.0% +0.0 p.p. +0.0 p.p. -7.4% -9.2%
Irani RANI3 Pulp & Paper (5.0)p.p. (5.0)p.p. -3.2% -5.3% +0.0 p.p. +0.0 p.p. -10.2% -12.9%
Klabin KLBN11 Pulp & Paper (5.0)p.p. (5.0)p.p. -1.5% -5.8% +0.0 p.p. +0.0 p.p. -10.0% -13.4%
Dexco DXCO3 Pulp & Paper (5.0)p.p. (5.0)p.p. -4.0% -3.7% +0.0 p.p. +0.0 p.p. -10.2% -10.2%
Suzano SUZB3 Pulp & Paper (5.0)p.p. (5.0)p.p. 5.9% -2.5% +0.0 p.p. +0.0 p.p. -1.5% -8.5%
Pulp & Paper (5.0)p.p. (5.0)p.p. 4.7% -3.1% +0.0 p.p. +0.0 p.p. -2.9% -9.4%
Multiplan MULT3 Real Estate +3.5 p.p. +2.9 p.p. -3.6% -3.2% +8.2 p.p. +7.4 p.p. -8.4% -8.4%
Aliansce Sonae ALSO3 Real Estate (3.8)p.p. (4.3)p.p. 3.5% 4.4% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
BR Malls BRML3 Real Estate (5.0)p.p. (6.4)p.p. 6.0% 8.4% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Iguatemi IGTI11 Real Estate (5.0)p.p. (3.3)p.p. 3.6% 2.8% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
SYN SYNE3 Real Estate n.a. (6.9)p.p. 14.4% 8.5% n.a. +0.0 p.p. 0.0% 0.0%
BR Properties BRPR3 Real Estate (5.1)p.p. (5.0)p.p. 6.3% 7.2% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
HBR HBRE3 Real Estate (5.0)p.p. (5.1)p.p. 6.8% 6.8% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
LOG LOGG3 Real Estate (3.9)p.p. (3.0)p.p. 5.8% 4.2% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Real Estate (5.0)p.p. (4.7)p.p. 2.3% 2.7% +0.0 p.p. +0.0 p.p. -2.7% -2.7%
Source: BTG Pactual estimates

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Brazil Strategy BTG Pactual Global Research
Strategy Note - 13 December 2022 Banco BTG Pactual S.A.

Table 6: Impact by company (2/3)

5p.p. tax cut and no IoE Same tax rate and no IoE
Effective tax rate (%) Net income (R$mn) Effective tax rate (%) Net income (R$mn)
Company Ticker Sector 2023 2024 2023 2024 2023 2024 2023 2024
AES Brasil AESB3 Utilities (5.0)p.p. (5.0)p.p. 7.4% 7.7% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Alupar ALUP11 Utilities +0.0 p.p. +0.0 p.p. 0.0% 0.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Ambipar AMBP3 Utilities (5.0)p.p. (5.0)p.p. 8.1% 8.3% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Auren AURE3 Utilities (5.0)p.p. (5.0)p.p. 2.9% 3.1% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Copasa CSMG3 Utilities (1.0)p.p. (1.0)p.p. 1.5% 1.5% +4.0 p.p. +4.0 p.p. -5.8% -5.9%
CPFL CPFE3 Utilities (5.0)p.p. (5.0)p.p. 7.4% 7.4% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
EDP do Brasil ENBR3 Utilities (0.0)p.p. +0.1 p.p. 0.3% 0.0% +5.0 p.p. +5.1 p.p. -8.1% -8.2%
Eletrobras ELET3 Utilities (5.0)p.p. (5.0)p.p. 5.1% 3.7% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Energisa ENGI11 Utilities (5.0)p.p. (5.0)p.p. 7.9% 8.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Eneva ENEV3 Utilities (5.0)p.p. (5.0)p.p. 6.1% 6.3% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Engie brasil EGIE3 Utilities +1.8 p.p. +1.8 p.p. -1.8% -1.8% +6.8 p.p. +6.8 p.p. -6.9% -6.7%
Equatorial EQTL3 Utilities (5.0)p.p. (5.0)p.p. 6.1% 6.3% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
ISA Cteep TRPL4 Utilities +0.0 p.p. +0.0 p.p. 0.0% 0.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Light LIGT3 Utilities (5.0)p.p. (5.0)p.p. 5.2% 5.3% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Neoenergia NEOE3 Utilities +1.0 p.p. +1.0 p.p. -1.5% -1.6% +6.0 p.p. +6.0 p.p. -9.2% -9.8%
Omega MEGA3 Utilities +0.0 p.p. 0.0% 0.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Orizon ORVR3 Utilities (5.0)p.p. (5.0)p.p. 3.0% 4.7% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Sabesp SBSP3 Utilities (1.0)p.p. (1.0)p.p. 1.6% 1.7% +4.0 p.p. +4.0 p.p. -5.7% -5.9%
Sanepar SAPR11 Utilities +0.8 p.p. +0.8 p.p. -1.2% -1.2% +5.8 p.p. +5.8 p.p. -8.4% -8.6%
Taesa TAEE11 Utilities +0.0 p.p. +0.0 p.p. 0.0% 0.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Utilities (5.0)p.p. (3.0)p.p. 3.3% 3.3% +0.0 p.p. +0.0 p.p. -2.4% -1.7%
Panvel PNVL3 Pharma +5.0 p.p. +5.0 p.p. -6.1% -6.1% +10.0 p.p. +10.0 p.p. -12.0% -12.2%
Hypera HYPE3 Pharma +8.7 p.p. +8.6 p.p. -9.5% -8.2% +13.7 p.p. +13.6 p.p. -15.0% -14.1%
Raia Drogasil RADL3 Pharma (2.9)p.p. (2.9)p.p. 4.3% 4.3% +2.1 p.p. +2.1 p.p. -3.1% -3.1%
Pharma +5.0 p.p. +5.0 p.p. -4.2% -3.1% +10.0 p.p. +10.0 p.p. -10.4% -9.6%
Renner LREN3 Apparel +7.8 p.p. +7.8 p.p. -8.8% -9.3% +12.8 p.p. +12.8 p.p. -14.5% -15.2%
Arezzo ARZZ3 Apparel +0.2 p.p. (0.9)p.p. 3.4% 1.8% +5.2 p.p. +4.1 p.p. -6.0% -6.0%
C&A CEAB3 Apparel (5.0)p.p. (5.0)p.p. 7.6% 2.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Grupo SBF SBFG3 Apparel (5.0)p.p. (5.0)p.p. 1.9% 4.7% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Grupo Soma SOMA3 Apparel +0.0 p.p. (0.5)p.p. 0.0% 0.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Track&Field TFCO4 Apparel (1.0)p.p. (1.0)p.p. 1.3% 1.5% +4.0 p.p. +4.0 p.p. -5.5% -5.9%
Vulcabras VULC3 Apparel (3.4)p.p. (5.0)p.p. 3.5% 9.7% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Apparel (1.0)p.p. (1.0)p.p. -3.2% -2.4% +0.0 p.p. +0.0 p.p. -8.0% -8.0%
Magazine Luiza MGLU3 E-commerce +4.0 p.p. +4.0 p.p. -5.1% -5.1% +9.0 p.p. +9.0 p.p. -11.5% -11.6%
Americanas AMER3 E-commerce (1.0)p.p. (1.0)p.p. 1.4% 1.4% +4.0 p.p. +4.0 p.p. -5.7% -5.7%
Allied ALLD3 E-commerce +1.0 p.p. +1.0 p.p. -1.2% -1.3% +6.0 p.p. +6.0 p.p. -7.2% -7.7%
E-commerce +1.0 p.p. +1.0 p.p. -1.3% -2.3% +6.0 p.p. +6.0 p.p. -8.0% -9.0%
Carrefour CRFB3 Food Retail +0.8 p.p. +0.8 p.p. -1.3% -1.3% +4.8 p.p. +5.0 p.p. -7.7% -8.0%
Assaí ASAI3 Food Retail (3.5)p.p. (3.5)p.p. 4.1% 4.1% +1.5 p.p. +1.5 p.p. -1.7% -1.8%
Grupo Mateus GMAT3 Food Retail (4.0)p.p. (4.0)p.p. 4.2% 4.5% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Zamp ZAMP3 Food Retail (5.0)p.p. (5.0)p.p. 6.7% 6.8% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Food Retail (3.8)p.p. (3.8)p.p. 1.6% 1.8% +0.7 p.p. +0.7 p.p. -4.0% -4.0%
Lojas Quero-Quero LJQQ3 General Retail (3.1)p.p. (0.7)p.p. 4.5% 1.0% +1.9 p.p. +4.3 p.p. -2.8% -6.2%
Natura NTCO3 General Retail (5.0)p.p. (5.0)p.p. 6.7% 6.9% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Petz PETZ3 General Retail (5.0)p.p. (5.0)p.p. 7.2% 7.5% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
CVC CVCB3 General Retail (5.0)p.p. (5.0)p.p. 5.3% 4.9% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
EspaçoLaser ESPA3 General Retail (5.0)p.p. (5.0)p.p. 7.2% 7.3% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
SmartFit SMFT3 General Retail (5.0)p.p. (5.0)p.p. 6.9% 7.1% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Positivo POSI3 General Retail (5.0)p.p. (5.0)p.p. 5.6% 5.9% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
General Retail (5.0)p.p. (5.0)p.p. 6.6% 6.7% +0.0 p.p. +0.0 p.p. -0.1% -0.1%
Rede D'Or RDOR3 Healthcare +0.5 p.p. (0.7)p.p. -0.6% 0.8% +3.8 p.p. +2.7 p.p. -4.7% -3.7%
Fleury FLRY3 Healthcare +0.4 p.p. +0.7 p.p. -0.3% -1.2% +6.4 p.p. +5.7 p.p. -8.8% -8.5%
Qualicorp QUAL3 Healthcare +0.9 p.p. +0.8 p.p. -1.3% -1.2% +5.9 p.p. +5.8 p.p. -8.5% -8.3%
Odontoprev ODPV3 Healthcare (1.2)p.p. (1.1)p.p. 1.8% 1.6% +3.8 p.p. +3.9 p.p. -5.4% -5.6%
SulAmérica SULA11 Healthcare +2.3 p.p. (1.2)p.p. -3.3% 1.8% +7.3 p.p. +3.8 p.p. -10.8% -6.2%
Mater Dei MATD3 Healthcare (0.6)p.p. (1.8)p.p. 0.6% 1.9% +4.4 p.p. +3.2 p.p. -4.1% -3.6%
Viveo VVEO3 Healthcare +4.3 p.p. (0.5)p.p. -4.2% 0.3% +7.3 p.p. +3.0 p.p. -7.1% -3.7%
Blau BLAU3 Healthcare +0.8 p.p. +0.5 p.p. -1.0% -0.7% +5.2 p.p. +3.9 p.p. -7.1% -5.8%
Healthcare +0.6 p.p. (0.6)p.p. -1.2% 0.8% +5.5 p.p. +3.8 p.p. -6.7% -5.0%
Source: BTG Pactual estimates

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Brazil Strategy BTG Pactual Global Research
Strategy Note - 13 December 2022 Banco BTG Pactual S.A.

Table 7: Impact by company (3/3)

5p.p. tax cut and no IoE Same tax rate and no IoE
Effective tax rate (%) Net income (R$mn) Effective tax rate (%) Net income (R$mn)
Company Ticker Sector 2023 2024 2023 2024 2023 2024 2023 2024
Ambev ABEV3 Beverages +20.8 p.p. +16.1 p.p. -22.1% -18.1% +24.8 p.p. +20.3 p.p. -26.3% -22.8%
Beverages +20.8 p.p. +16.1 p.p. -22.1% -18.1% +24.8 p.p. +20.3 p.p. -26.3% -22.8%
M. Dias Branco MDIA3 Food +1.4 p.p. +1.6 p.p. -1.5% -1.9% +3.8 p.p. +4.4 p.p. -4.1% -5.1%
JBS JBSS3 Food (4.6)p.p. (4.6)p.p. 7.3% 7.3% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Minerva BEEF3 Food (3.7)p.p. (3.7)p.p. 4.9% 4.9% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
BRF BRFS3 Food (3.7)p.p. (3.7)p.p. 5.2% 5.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Marfrig MRFG3 Food (3.7)p.p. (3.7)p.p. 8.1% 9.6% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Food (3.7)p.p. (3.7)p.p. 6.3% 6.1% +0.0 p.p. +0.0 p.p. -0.3% -0.5%
SLC Agrícola SLCE3 Agribusiness (3.8)p.p. (3.8)p.p. 5.2% 5.5% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
BrasilAgro AGRO3 Agribusiness (2.6)p.p. (2.6)p.p. 3.3% 3.4% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
São Martinho SMTO3 Agribusiness (3.7)p.p. (3.7)p.p. 4.3% 4.2% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Jalles Machado JALL3 Agribusiness (2.7)p.p. (2.8)p.p. 3.4% 3.6% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
3tentos TTEN3 Agribusiness (0.6)p.p. (1.2)p.p. 0.6% 1.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
AgroGalaxy AGXY3 Agribusiness +0.0 p.p. +0.0 p.p. 0.0% 0.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Agribusiness (2.7)p.p. (2.7)p.p. 3.7% 3.7% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Localiza RENT3 Rental +4.2 p.p. +3.6 p.p. -5.6% -4.8% +9.2 p.p. +8.6 p.p. -12.3% -11.4%
Movida MOVI3 Rental +0.9 p.p. +1.1 p.p. -1.3% -1.5% +5.9 p.p. +6.1 p.p. -8.3% -8.5%
Mils MILS3 Rental +1.0 p.p. +0.9 p.p. -1.3% -1.2% +6.0 p.p. +5.9 p.p. -8.3% -8.2%
Armac ARML3 Rental (0.5)p.p. (1.2)p.p. 0.7% 1.7% +4.5 p.p. +4.5 p.p. -6.4% -5.4%
Vamos VAMO3 Rental +0.9 p.p. +0.9 p.p. -1.3% -1.3% +6.0 p.p. +6.0 p.p. -8.3% -8.3%
Rental +0.9 p.p. +0.9 p.p. -2.9% -2.4% +6.0 p.p. +6.0 p.p. -9.8% -9.3%
Simpar SIMH3 Logistics (1.3)p.p. (1.4)p.p. 1.8% 2.0% +3.7 p.p. +3.6 p.p. -5.3% -5.1%
Sequoia SEQL3 Logistics (5.0)p.p. (5.0)p.p. 7.2% 7.4% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
JSL JSLG3 Logistics +1.4 p.p. +1.4 p.p. -1.8% -1.8% +6.4 p.p. +6.4 p.p. -8.5% -8.5%
Tegma TGMA3 Logistics (1.5)p.p. (2.1)p.p. -3.0% -1.8% +3.5 p.p. +2.9 p.p. -9.4% -8.3%
GPS GGPS3 Logistics (5.0)p.p. (5.0)p.p. 7.6% 7.6% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Logistics (1.5)p.p. (2.1)p.p. 2.2% 2.5% +3.5 p.p. +2.9 p.p. -4.9% -4.7%
Aeris AERI3 Capital Goods (5.0)p.p. (5.0)p.p. 5.9% 5.9% +0.0 p.p. (0.0)p.p. 0.0% 0.0%
Embraer EMBR3 Capital Goods +6.8 p.p. +6.9 p.p. -8.2% -8.3% +11.8 p.p. +11.9 p.p. -14.2% -14.3%
Randon RAPT4 Capital Goods +1.1 p.p. +1.1 p.p. -1.7% -1.7% +6.1 p.p. +6.1 p.p. -9.3% -9.3%
Fras-le FRAS3 Capital Goods +0.8 p.p. +3.3 p.p. -1.0% -4.3% (5.0)p.p. (5.0)p.p. -7.6% -10.9%
Marcopolo POMO4 Capital Goods +6.9 p.p. +6.1 p.p. -8.8% -7.8% +11.9 p.p. +11.1 p.p. -15.3% -14.3%
Iochpe-Maxion MYPK3 Capital Goods (0.9)p.p. (0.7)p.p. 1.5% 1.2% +6.9 p.p. +7.1 p.p. -11.7% -11.8%
Tupy TUPY3 Capital Goods +0.8 p.p. +0.8 p.p. -1.1% -1.1% +5.8 p.p. +5.8 p.p. -8.0% -8.0%
WEG WEGE3 Capital Goods +1.5 p.p. +1.3 p.p. -0.4% -0.1% +6.5 p.p. +6.3 p.p. -6.5% -6.5%
Capital Goods +0.9 p.p. +1.2 p.p. -1.4% -1.4% +6.3 p.p. +6.2 p.p. -8.2% -8.4%
Rumo RAIL3 Infrastructure (5.0)p.p. (5.0)p.p. 6.8% 7.6% +0.0 p.p. (0.0)p.p. 0.0% 0.0%
CCR CCRO3 Infrastructure (5.0)p.p. (5.0)p.p. 9.9% 9.4% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Ecorodovias ECOR3 Infrastructure (5.0)p.p. (5.0)p.p. 8.3% 8.3% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Santos Brasil STBP3 Infrastructure (0.0)p.p. +0.8 p.p. 0.0% -1.1% +5.0 p.p. +5.0 p.p. -6.9% -8.0%
Wilson Sons PORT3 Infrastructure (5.0)p.p. (5.0)p.p. 7.6% 7.6% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Hidrovias do Brasil HBSA3 Infrastructure (5.0)p.p. (5.0)p.p. 7.1% 7.1% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Infrastructure (5.0)p.p. (5.0)p.p. 7.0% 7.3% +0.0 p.p. +0.0 p.p. -1.1% -0.9%
Petrobras PETR4 Oil & Gas (3.0)p.p. (3.0)p.p. 4.5% 4.6% +2.0 p.p. +2.0 p.p. -3.0% -3.1%
Ultrapar UGPA3 Oil & Gas (3.0)p.p. (3.0)p.p. 4.4% 4.6% +2.0 p.p. +2.0 p.p. -3.0% -3.0%
Vibra VBBR3 Oil & Gas +1.0 p.p. +1.0 p.p. -1.4% -1.5% +6.0 p.p. +6.0 p.p. -8.3% -8.8%
Raízen RAIZ4 Oil & Gas (1.0)p.p. (1.0)p.p. 1.4% 1.5% +4.0 p.p. +4.0 p.p. -5.7% -6.0%
Cosan CSAN3 Oil & Gas +0.0 p.p. (1.0)p.p. n.a. 1.3% +0.0 p.p. +4.0 p.p. n.a. -5.1%
PetroRio PRIO3 Oil & Gas (5.0)p.p. (5.0)p.p. 7.6% 8.0% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
3R Petroleum RRRP3 Oil & Gas (5.0)p.p. (5.0)p.p. 6.3% 6.5% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
PetroReconcavo RECV3 Oil & Gas (5.0)p.p. (5.0)p.p. 5.9% 6.2% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Braskem BRKM5 Oil & Gas (5.0)p.p. (5.0)p.p. 7.3% 7.5% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Dexxos DEXP3 Oil & Gas (5.0)p.p. (5.0)p.p. 7.1% 7.4% +0.0 p.p. +0.0 p.p. 0.0% 0.0%
Oil & Gas (4.0)p.p. (4.0)p.p. 4.6% 4.6% +0.0 p.p. +1.0 p.p. -2.9% -3.0%

Consolidated -0.9% -1.1% -7.9% -8.0%

Source: BTG Pactual estimates

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Brazil Strategy BTG Pactual Global Research
Strategy Note - 13 December 2022 Banco BTG Pactual S.A.

Disclosures
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Brazil Strategy BTG Pactual Global Research
Strategy Note - 13 December 2022 Banco BTG Pactual S.A.

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