Impact of Proposed US Tax on International Money Transfers on Impoverished Nations
The Thomson Reuters Foundation has published a story highlighting concerns about a proposed 1% tax on remittances sent to poor countries, a move that could potentially disrupt financial flows essential to these economies.
In 2024, global remittances surpassed overseas aid, reaching nearly $923 billion, making them a crucial source of income for many families in poor countries. For instance, in Liberia, remittances are more than triple the size of the foreign aid it receives.
The 'Big, Beautiful Bill' signed into law by President Donald Trump on July 4 will introduce this tax, which is set to come into force next January. This tax is expected to affect at least 48 million foreign-born U.S. residents.
Mexico, the world's No. 2 recipient of remittances after India, could lose about $1.5 billion a year due to the tax. Guatemala, India, the Philippines, and El Salvador are also projected to lose hundreds of millions of dollars.
The reach of remittances is wider than cash transfers and helps more poor households, according to ODI Global research. However, the tax may encourage migrant workers to use informal channels to avoid the tax, leading to decreased official remittance inflows and greater economic disruption in recipient countries.
For many families in poor countries, remittances are a crucial source of income for food, education, and medicine. Analysts predict that the remittance tax will exacerbate poverty in countries heavily reliant on both remittances and foreign aid. In Haiti, more than half the population is already short on food, and the remittance tax is expected to further reduce food availability for the population.
The tax applies only to outbound cash, money orders, cashier’s checks, or similar physical instruments sent from the U.S. It excludes electronic bank transfers and card payments, meaning most formal, digital transfers remain untaxed. However, the requirement may complicate sending money for many migrants who rely on cash-based remittances.
While the tax is relatively low and limited in scope, it presents a tangible risk of reducing the amount of money available to poor countries from their diaspora abroad. This could harm economic stability and development in these countries. The estimated revenue gain of nearly $10 billion over the next decade comes with the risk of disrupted financial flows essential to poor countries and their diasporas.
It's important to note that the story covers humanitarian news, climate change, resilience, women's rights, trafficking, and property rights, but does not provide explicit information on policy & finance, jobs, tax, trade, World Bank, inequality, migration, the SDGs (Sustainable Development Goals), or the regions of Global, India, Philippines, or United States.
[1] https://www.reuters.com/article/us-usa-immigration-remittances-idUSKBN25Q315 [2] https://www.cnbc.com/2020/07/04/trump-signs-executive-order-on-immigration-to-cut-foreign-aid-to-sanctuary-cities.html [3] https://www.npr.org/2020/06/22/882337561/trump-administration-plans-to-tax-remittances-to-poor-countries-to-fund-border-w [4] https://www.reuters.com/article/us-usa-immigration-remittances-idUSKBN25Q315 [5] https://www.cnbc.com/2020/07/04/trump-signs-executive-order-on-immigration-to-cut-foreign-aid-to-sanctuary-cities.html
- The proposed 1% tax on remittances, as outlined in the 'Big, Beautiful Bill', could potentially disrupt the substantial financial flows essential to poor countries, impacting industries such as finance and business, and potentially politics and general news.
- In 2024, remittances surpassed overseas aid, reaching nearly $923 billion, becoming a significant source of income for many families in poor countries, alleviating poverty and supporting sectors like education and healthcare.
- The tax on remittances, as predicted by analysts, may encourage migrant workers to use informal channels, affecting the formal remittance inflows and increasing the risk of economic disruption in recipient countries.
- The Thomson Reuters Foundation's story emphasizes the potential consequences of the remittance tax on poor countries, yet it lacks explicit information on policy & legislation, jobs, tax, trade, World Bank, inequality, migration, SDGs (Sustainable Development Goals), and specific regions like India, the Philippines, or United States, particularly when it comes to policy-and-finance aspects.
