Introduction
The Mexican Institute of Executives in Finance (IMEF) warns that a proposed 5% tax on remittances from the United States could significantly alter the remittance market, pushing migrants to use alternative methods like cryptocurrencies, which would increase costs and risks.
IMEF’s Perspective
Gabriela Gutiérrez, the national president of IMEF, emphasizes that numerous communities in Mexico rely heavily on remittances for their survival. She highlights that remittances account for 24% of El Salvador’s GDP, over 3% of India’s and Mexico’s GDP, and between 10% to 14% of the GDP in the Mexican states of Oaxaca, Zacatecas, Michoacán, Guerrero, and Chiapas.
Gutiérrez predicts that if the tax is approved, migrants might resort to alternative, non-traditional methods like encomiendas or cryptocurrencies for sending remittances, thereby raising costs and risks. She also anticipates a reduction in the volume of remittances sent from the US due to increased persecution of undocumented migrants, which would negatively impact local economies in several US states where remittances are a primary source of income.
IMEF’s Economic Committee Perspective
Víctor Herrera, president of the IMEF’s National Economic Studies Committee, acknowledges that remittances constitute only 3% of Mexico’s national GDP, suggesting minimal impact on the overall economy. However, he concedes that certain states and municipalities, such as Fresnillo in Zacatecas, are heavily dependent on remittances for their local economies.
Herrera asserts that while the tax may not have a substantial effect on the national economy, it could significantly impact localities that rely heavily on remittances.
Legislative Progress
On Sunday, the Republican Party’s project proposing a 5% tax on remittances was approved by the US House Budget Committee. The project, known as “One Big Beautiful Bill,” aims to expand Trump’s 2017 tax cuts, reduce taxes on tips and overtime pay, increase defense spending, and allocate more funds for border control and immigration enforcement.
The project could be approved by the House of Representatives this week.
Legal Validity of the Remittance Tax
Ramsés Pech, an economic advisor, asserts that the proposed 5% tax on remittances has broad legal and juridical viability within the US’s sovereignty. He explains that the 5% tax applies to remittance-sending services, not the worker’s salary, so the US government could argue that it does not constitute double taxation or violate any bilateral treaties between the US and Mexico.
Key Questions and Answers
- What is the proposed tax on remittances? A 5% tax on remittances sent from the United States, which could be approved by the US Congress this week.
- Who warned about the tax’s impact? Gabriela Gutiérrez, president of the Mexican Institute of Executives in Finance (IMEF), cautioned that the tax would reconfigure the remittance market, pushing migrants to more costly and risky alternatives.
- Which communities would be affected the most? Numerous Mexican communities, particularly in Oaxaca, Zacatecas, Michoacán, Guerrero, and Chiapas, rely heavily on remittances for their survival.
- What is the potential impact on the Mexican economy? Víctor Herrera, president of IMEF’s National Economic Studies Committee, suggests minimal impact on the national economy but acknowledges potential significant effects on local economies dependent on remittances.
- What is the legislative progress of this tax proposal? The Republican Party’s project proposing a 5% tax on remittances was approved by the US House Budget Committee and could be approved by the House of Representatives this week.
- Is the proposed tax on remittances legal? Ramsés Pech, an economic advisor, asserts that the proposed tax has broad legal and juridical viability within the US’s sovereignty.
