Introduction
On Wednesday, the US House of Representatives advanced a proposal to impose a 5% tax on remittances sent by migrant workers as part of the Republican Party’s fiscal changes package.
Voting and Expert Concerns
The proposal passed the House Ways and Means Committee with 26 Republican votes in favor and 19 Democratic votes against, despite diplomatic efforts to prevent the measure from passing. Before the vote, experts from the Center for Monetary Studies of Latin America (Cemla) and BBVA warned that low-income migrant workers are highly sensitive to remittance costs.
Potential Shift to Informal Channels
The implementation of this tax is likely to push migrant workers towards informal and unregulated channels, but they will continue supporting their families in their home countries, according to Cemla’s Remittances Forum Director Jesús Cervantes González. He suggested that digital remittances and cryptocurrencies could be used to send funds if the initiative advances in the US Congress.
Cervantes González acknowledged that this would result in a loss of information and transparency on remittance operations, which he deemed “undesirable and inefficient.” However, resources would still reach their intended recipients.
Impact on Mexican Workers
According to BBVA México’s Chief Economist Carlos Serrano, the tax would affect approximately four million Mexicans out of twelve million living in the US if it becomes law. He recommended using alternative channels for resource transfers, such as friends, bank transfers, or fintech companies.
Serrano pointed out that bank transfers are more expensive than remittances and wouldn’t be recorded as migrant worker-to-family transfers in Mexico.
Additional Costs for Remittance Senders
Up to $30 More per $400 Remittance
BBVA’s expert explained that migrant senders could easily absorb the tax and ensure their family members in their home countries continue receiving the same amount. A typical remittance is around $400, with a sending cost of about $10. If the 5% tax passes, senders would pay an additional $20 for oversight and the $10 sending fee, totaling $30 more.
This increase is manageable for migrants in the US, as Cervantes González noted that 20 years ago, senders paid $40 for remittances and still sent them.
Migrant Workers Already Pay Taxes
Cervantes González clarified that, as per the document, the tax would take effect after December 31, 2025. Both citizen and non-citizen immigrants would be subject to the tax, but citizens could offset it in their annual tax declarations.
He explained that Mexican immigrants with permanent residency, without citizenship, and undocumented workers all pay taxes. They pay income tax, sales tax on purchases, and local taxes like property tax.
Misconceptions About Undocumented Immigrants and Taxes
Despite common misconceptions that undocumented immigrants don’t pay taxes, thousands of them file annual returns using the Individual Taxpayer Identification Number (ITIN), sometimes with the help of tax preparation services.
Lack of International Precedent
Cemla’s expert noted that there are no international references among advanced economies regarding taxes on remittances.
The reduction of remittance costs has been a goal of the international agenda, particularly for G8 countries like the US. The World Bank has also long pursued cheaper remittance costs, warning that a tax on such transactions would increase their cost.
