Trump remittance tax to hit Africans hard

Time of India

2 days ago

Representative AI image
For Enoch Aikins, a political economist who focuses on Africa, the topic of sending money home to relatives is personal.
"I can use myself as an example, as somebody that comes from a typical village with a lot of people or [with] a family that depends on me," he told DW.
A researcher with the Institute of Security Studies now based in Pretoria, South Africa, Aikins grew up in the small town of Agona Kwanyako, about 70 kilometers (some 43 miles) from the Ghanaian capital, Accra.
His job means he can provide a vital source of income for many in his family back home in Ghana, whether it be for his mother's medical bills or for his cousins' education.
"Anytime there's a family problem, they call me and I have to quickly find a way to send money to them to solve an emergency crisis," he said.
"Mostly it is household expenses, things like food, accommodation, school fees or to cover medical expenses."
A global impact
Aikins is one of many millions of Africans across the continent and around the world who send remittances, which are financial transfers to their home country or region.
The importance of these financial transfers has come into sharp focus as a result of the recent tax bill from US President Donald Trump, passed on May 22 by the House of Representatives.
The measure includes a 3.5% tax on remittances made by anyone who is not a US citizen or national. The original plan was for the tax to be 5% but it was lowered before the vote.
The bill has led to fierce criticism across Latin America, where it is likely to severely hurt poor migrants from Mexico, Central and South America.
Africans will also be significantly affected, according to Aikins. "We cannot tell them how to go about their fiscal business, but this is going to have a huge impact on African economies."
World Bank data shows that remittance flows into Africa were more than $92 billion (€81 billion) in 2024, with the United States alone accounting for at least $12 billion in that year.
According to World Bank, the US is also the largest origin country for all remittances in the world, accounting for more than $656 billion in 2023.
Monica de Bolle, a senior fellow at the Peterson Institute for International Economics in Washington, DC, said, however, here is a lack of reliable data on remittances because so much is not sent via recorded transactions.
"People have different arrangements for sending money back home," she told DW. "Sometimes it's as official as a family member comes and visits and then they get a wad of cash and they go back home with that. And those kinds of transactions are simply unaccounted for."
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onetheless, whatever data is available, she argued, underlines the importance of the US as a source of remittances for Africa and much of the Americas.
How important are remittances for Africa?
Remittances are important across Africa for three key reasons. Firstly, they represent a major chunk of income for many of the continent's economies, many of which are among the world's poorest.
Recent data suggests annual remittances now outweigh both aid and foreign direct investment (FDI) as income flows into the continent.
Aikins said remittances are the "largest external financial flow into Africa" at the moment.
"There are no bottlenecks or administrative issues that, for instance, if you are giving aid of about $100 million to an African country or an institution, more than half is gone on administration before it reaches people," he added.
Then there's the fact that it's typically lower-income groups that are most reliant on remittances from relatives or friends working abroad.
"It's extremely damaging," said Monica de Bolle.
"A lot of the time, these flows are coming from low-income folks in the United States to their home countries and their families who are also not well off."
Some African countries will be hit harder than others. While the continent's big economies, such as Egypt, Nigeria, and Morocco, account for the highest total level of remittances from abroad, some economies are especially dependent, according to Aikins.
World Bank data shows that remittances received as a percentage of GDP is around 20% for Lesotho, Comoros, Somalia, Gambia, and Liberia.
'Taking money out of people's pockets'
De Bolle is critical of the remittance levy and thinks migrants will find ways of avoiding the tax. "People who are sending money back home, if they were using official channels to do this, they're now going to try to use unofficial channels to do it because they will want to evade the tax."
She points out that taxation of remittances is rare globally and thinks the policy is part of the Trump administration's campaign against illegal migration.
"The effect will be squeezing the migrants, squeezing the people who are currently living in the United States, shutting off mechanisms by which not only they sustain themselves, but they sustain their family members," said Bolle.
"Bottom line is that remittances are a pocketbook issue. You are taking money out of people's pockets."
Aikins' remittances won't be taxed, as they are not coming from the US. Yet he can clearly imagine the real-life consequences for someone in a village like the one he grew up in who is dependent on a relative sending money from the US.
When he gets a request for money, it's needed quickly, and he thinks migrants will turn increasingly to cryptocurrency and other off-grid methods to send the money where it needs to go.
"The tax is going to have a tremendous effect on how people send money to their dependents back home."