Card payment processor Cielo SA is projecting net income to take a hit from the Brazilian Senate's decision of setting a 2% floor on the ISS, a service tax charged by states and municipalities, Reuters reported, citing CFO Clovis Poggetti.
A decline of 1% to 2% in annual profit due to a 1 percentage-point rise in the ISS tax is possible, Poggetti and other executives said in an investors' meeting. The senate bill is expected to take effect in early 2018 but has yet to be signed by President Michel Temer.
The company is focusing on profitability to cushion itself against Brazil's recession and increased competition, Reuters noted.
While rumors abound that the current administration wants to shorten the timeline for the settlements of receivable prepayments of card payment processors to only two days from the current 28 days, Cielo's executives said they will wait for a formal statement to be released before assessing any potential impact. Cielo's shares have fallen almost 9% this week on reports of this potential change, Reuters noted.
Cielo's income from prepayments of receivables has considerably grown over the last years, the report said, an annoyance for retailers that claim card processors are keeping their sales proceeds longer than usual. Government officials also said that reducing the number of processing days for receivable prepayments would shield companies from the country's recession. The revenue source accounted for 25% to 40% of Cielo's profit in past quarters.
The proposals are part of the Brazilian government's efforts to revive its ailing economy, although they also present risks to financial companies processing transactions for both consumers and companies, the report said.