Background on BBVA and its Relevance
BBVA, a Spanish multinational banking and financial services company headquartered in Madrid, is one of the most significant financial institutions in Spain and has a substantial presence in North America, Latin America, Europe, and Asia. With over 60 million customers worldwide, BBVA plays a crucial role in the global financial landscape. Its insights on migration trends and remittances are highly regarded due to its extensive reach and expertise in cross-border transactions.
Proposed 5% Tax on Remittances
The proposed 5% tax on remittances from the United States for undocumented migrants, as suggested by former President Donald Trump’s administration, could push these individuals to seek informal channels for money transfers. According to BBVA, this tax would significantly increase the cost of sending $300 from the US to Mexico, raising it from $6 to approximately $23.50 – nearly four times the current cost.
Potential Consequences of Using Informal Channels
BBVA warns that migrants might resort to informal channels, such as relying on family or friends with US citizenship or residency to avoid the tax, or attempting to open bank accounts for formal interbank transfers. However, those without such support or access to the formal banking system may turn to illegal informal channels.
Legal and Illegal Alternatives
BBVA highlights that legal alternatives for money transfers might see increased usage or strengthening due to the higher costs associated with formal channels. These alternatives include:
- Money remitters charging a commission
- Cross-border e-commerce (purchasing products and services online, paid for in the US but delivered in Mexico)
- Electronic wallets and gift card balances purchased in the US and used for purchases in Mexico
While these options are legal, BBVA cautions that if the tax encourages the use of illegal informal channels, it could lead to criminal organizations becoming involved in these activities.
Legislative Update
The proposed legislation faced a setback on May 16 when some Republican congressmen expressed dissatisfaction, causing the initiative to be put on hold. However, on May 18, the House Budget Committee approved moving forward with the project. BBVA considers it likely that the remittance tax will be implemented once the 2026 fiscal budget is approved.
Call for Increased Financial Inclusion
BBVA urges Mexican authorities and financial institutions to address this challenge by enhancing financial inclusion, which would support the current administration’s digitalization agenda.
Key Questions and Answers
- What is the proposed tax on remittances? The Trump administration suggested a 5% tax on remittances sent from the United States to Mexico, primarily targeting undocumented migrants.
- How would this tax affect remittance costs? The proposed tax would increase the cost of sending $300 from the US to Mexico from approximately $6 to around $23.50.
- What alternatives might migrants consider? Migrants may rely on family or friends in the US, attempt to open bank accounts, or turn to informal and potentially illegal channels if they lack support or access to formal banking.
- What are the legal alternatives mentioned by BBVA? Legal alternatives include money remitters, cross-border e-commerce, and purchasing electronic wallets or gift cards in the US for use in Mexico.
- What is the current status of the proposed tax? Although the proposal faced initial setbacks, it was later approved by the House Budget Committee, making its implementation likely once the 2026 fiscal budget is passed.
- What action does BBVA recommend for Mexican authorities? BBVA urges Mexican authorities and financial institutions to prioritize increasing financial inclusion to support the current administration’s digitalization efforts.
