Pagseguro Digital Ltd. (PAGS) saw its stock plummet by 5.4% in the pre-market trading session on Friday, following a proposed tax reform by the Brazilian government that rattled the financial sector.

The proposal to expand income tax exemptions for lower-income Brazilians while increasing taxes on those who earn more sparked a sell-off in the markets. The Brazilian real hit an all-time low of 6.02 per US dollar on Thursday, as investors reacted with frustration to the unexpected tax hike for higher-income segments.

Financial services companies catering to higher-income customers, like Pagseguro Digital, faced significant selling pressure amid concerns that the tax reform could impact their customer base. Analysts suggest that while the reform may benefit companies with a larger exposure to lower-income segments in the near term, the mid-term outlook remains uncertain due to potential inflationary pressures arising from the reforms.