Understanding the Proposed Remittance Tax Reform
Marina Olman, a financial operations advisor, explained the initial outline of the remittance tax reform during a discussion organized by The Dialogue think tank. According to her, the tax will apply to remittances sent in cash or through money orders. However, if a sender uses a credit or debit card issued by a U.S.-based financial institution or employs digital transfer mechanisms, these transactions will be exempt from the tax.
Who Will Be Affected?
- Remittance companies
- Private banks
- Financial institutions
- Trust companies
- Credit unions
- Financial intermediaries
Smaller companies, especially those processing around 500 transactions monthly, may face challenges due to the new regulations, potentially impacting their operations and raising privacy concerns regarding data storage.
State Attempts to Tax Remittances
Kathy Tomasofsky, the CEO of the U.S. Payments Industry Association, mentioned that in 2022, 19 U.S. states proposed 29 different remittance tax bills. However, financial institutions demonstrated that implementing these laws would negatively affect their operations, discouraging states from reintroducing the bills.
Currently, only Oklahoma imposes a remittance tax since 2009, charging 1% on every $500 sent as remittances. In the first quarter of the current year, Oklahoma accounted for 0.8% of total remittances to Mexico, totaling $112 million. This figure contrasts sharply with California’s $4.4 billion, the leading remittance sender to Mexico.
Mexican Government’s Support for Digital Transfers
In Mexico, President Claudia Sheinbaum emphasized during her morning press conference that the primary goal is to facilitate access to the Financial Well-being Card (Finabien) for remittance senders rather than simply refunding cash transfers.
“We want them to be able to load funds onto the card and send remittances directly from there, adhering to U.S. regulations,” she stressed.
Global financial system officials clarified that all remittances arrive in Mexico digitally from the U.S., but nearly half are withdrawn in cash by migrant workers at remittance outlets. The U.S. government will tax the act of sending remittances.
