Introduction to Remittance Tax and its Impact
The Centro de Estudios Monetarios de Latinoamérica (Cemla) has stated that the proposed 1% tax on cash remittances sent from the United States will not affect the amounts received in Mexico, Central America, the Dominican Republic, Jamaica, or Colombia.
Tax Application and Exemptions
Although the highest absolute tax amounts will be for remittances to Mexico, Guatemala, and Jamaica, Cemla suggests that senders can avoid the tax by using their bank account or debit card. The organization also highlighted that there are mechanisms for Latino immigrants to easily open US bank accounts, even if they are undocumented, by providing a consular ID and additional information such as proof of residence.
Cemla emphasized that the tax is based on how remittances are paid in the US, whether in cash, debit or credit cards, or bank accounts, rather than the method of transfer to recipients in origin countries.
Key Figures and Analysis
Using Mexico’s 2024 remittance figures, which totaled $62,529 million, Cemla estimated that approximately $29,389 million were sent in cash.
This implies that nearly 47% of the total remittances captured in Mexico would be subject to the tax, set to take effect on January 1, 2026. Cemla projects that the tax implementation would result in a $294 million revenue.
According to their calculations, the tax would represent a fraction (less than one thousandth) of the wage mass or labor income for migrant groups from Mexico, El Salvador, Costa Rica, the Dominican Republic, and Colombia.
Cemla acknowledged that the tax’s impact is a measurement of the maximum revenue, as there are likely Latino immigrants in the US with bank accounts or financial intermediaries.
Key Questions and Answers
- What is the proposed tax on remittances? A 1% tax will be applied to cash remittances sent from the United States.
- Which countries will be affected by this tax? The tax does not affect Mexico, Central America, the Dominican Republic, Jamaica, or Colombia.
- How can senders avoid the tax? Senders can use bank accounts or debit cards to avoid the tax.
- What percentage of Mexican remittances are expected to be taxed? Approximately 47% of Mexican remittances, totaling around $29,489 million in 2024, are projected to be subject to the tax.
- What is the estimated revenue from this tax? Cemla projects that the tax will generate approximately $294 million.
- How significant is the tax’s impact on migrant income? The tax represents a negligible fraction (less than one thousandth) of the wage mass or labor income for migrant groups from Mexico, El Salvador, Costa Rica, the Dominican Republic, and Colombia.
