Remittance tax draws fintech pushback

Yahoo

2 days ago

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A provision of the budget bill making its way through Congress that would impose an excise tax on cross-border money transfers has drawn opposition from fintech groups.
The tax would be paid by consumers sending the money, but not by those who are U.S. citizens, according to the text of the May 20 House budget proposal.
The budget bill, known as the Big Beautiful Bill, was passed by the House of Representatives last week, and still awaits a vote in the Senate. Both chambers are controlled by Republicans, who have worked alongside President Donald Trump's administration to craft the bill.
In a Tuesday press release, the American Fintech Council said it 'expressed strong concern' about the tax in a letter to congressional leaders that day. Such a tax 'would harm small businesses and everyday consumers while empowering bad actors and undermining effective anti-money laundering enforcement,' the letter said, according to the release.
The council has locked arms with other industry organizations on a joint response to the remittance tax proposal, including the Financial Technology Association and Electronic Transactions Association.
The proposal would increase costs for pharmacies and grocers, as well as other small businesses that offer such money transfer services, the council said in its release. Consumers who use the transfers to send money to other countries would also ultimately shoulder the increased cost, the release added.
The organizations also object to Americans being required to disclose personal information to avoid having to pay the tax.
'Under the proposal, American citizens would be required to submit personal information to financial institutions and the Internal Revenue Service in order to avoid paying a new tax on cross-border payments,' the FTA contended in a separate Wednesday press release. 'This would impose an undue tax burden on everyday Americans, who would be forced into more complicated tax treatment for sending money abroad or miss the tax break when filing.'
Such cross-border payments are often sent by migrants living in foreign countries to their family and friends back home. The transfers are often referred to as remittances. The U.S. is the country from which the majority of remittances flow, with the top recipient countries being India, Mexico and China, respectively, according to a World Bank blog post in December.
A cottage industry of payments startups have sprung up in recent years to offer digital remittances. Such international transfers have long been relatively costly and complicated to send. The expanding service providers see an opening to reduce costs related to such transfers, including for the consumer, and thereby increase volume.
Some new fintech entrants include Seattle-based Remitly and the British company Wise. They're increasing competition for established industry players such as Denver-based Western Union, Dallas-based MoneyGram and San Jose, California-based PayPal Holdings.
When asked about the tax during an interview, MoneyGram CEO Anthony Soohoo said it was 'unfortunate' that such a tax would be included in the budget. He noted that sending such payments is usually 'a need' as opposed to 'a want' for consumers.
'At this time, we are monitoring the situation and seeing how that plays out, and if it becomes something that does pass, we'll adapt like we have with any legislation, but it's really, right now, hard for us to know how to react,' Soohoo said.
PayPal, Remitly and Wise all have representatives on FTA's board, according to the organization's website. Spokespersons for those companies didn't immediately respond to requests for comment.
The budget tax on such international money transfers was initially proposed as a 5% levy, but then reduced to a 3.5% tax proposal, according to an amendment.
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