Sopuruchi Onwuka

The new tax bill by the government of the United States of America may deliver sour impact on developing economies of the world, and mainly Nigeria where diasporas’ remittances have formed an official channel of foreign exchange income.

The tax bill, The Oracle Today reports, includes a plan to place significant levies on remittances leaving the United States to many parts of the world as the present administration of President Donald Trump drives aggressive trade and immigration policies.

World Bank’s reports show that most remittances from Africans in diaspora are real family incomes that are rarely for commercial investments as they are majorly used in discharging family responsibilities like paying school fees, buying food and paying medical bills.

Every year millions of Africans across the world make financial transfers to their home countries; and under the new US President Donald Trump’s tax bill, original tax of 5 percent was imposed on remittances made by anyone who is not a US citizen or national. However, the House of Representatives passed a 3.5 percent tax on May 22.

The bill which is likely to severely hurt poor migrants from Africa to where the World Bank data indicates that significant $92 billion flowed in 2024, with the United States alone accounting for at least $12 billion of it in that year.

The new tax entails official cut of significant $420 million in taxes on remittances flowing through officially regulated channels in the financial services sector. Consequently, African countries receiving larger volumes of remittances from the US are to be proportionately hit harder than others.

While the continent’s big economies such as Egypt, Nigeria and Morocco receive the highest total level of remittances from abroad, some economies are especially dependent on their citizens’ interventions in home families, according to analysts.

Nigeria ranks among the top recipients of remittances globally as citizens checking on relatives from all corners of the world throw in billions of dollars to resolve issues at home. With galloping inflation brought on by the significant depreciation of the Naira value, the Nigerian diaspora have remained relentless in funneling funds back home.

Remittances from Nigerians abroad reached a 5-year-high of $20.93 billion in 2024, and continue to play a significant role in the domestic economy as critical channel for foreign exchange supply.

Official data show that diaspora remittances of $35.368 billion actually exceeded the Nigeria’s foreign reserves in 2016, and also accounted for 5.6 per cent of GDP in 2017 when mindless external borrowing spree by the Buhari administration exacerbated prevailing fall in oil prices to bring the overall economy to shambles.

World Bank data shows that remittances received as a percentage of GDP is around 20 percent for other African countries including Lesotho, Comoros, Somalia, The Gambia and Liberia. Data produced by the multilateral lender also showed that the US is also the largest origin country for all remittances in the world, accounting for more than $656 billion in 2023.

However, discerning analysts point out that the World Bank’s remittance figures on Africa are far much lower than the actual cash haul since, according to them, far much more of the remittances are hand carried and therefore under official radar.

Senior fellow at the Peterson Institute for International Economics in Washington D.C., Monica de Bolle, observes in reports surveyed by The Oracle Today that there is a lack of reliable data on remittances because, she said, so much of the remittances is not sent via recorded transactions.

“People have different arrangements for sending money back home,” she said in a report seen by The Oracle Today in the German outlet Deutsche Welle (DW).

“Sometimes it’s as official as a family member comes in 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.”

Nonetheless, whatever data is available, she argues, underlines the importance of the US as a source of remittances for African and much of the Americas.

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 says that 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.

Monica de Bolle noted that the new tax is extremely damaging, saying that “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.”

She stated that 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.”