The US House of Representatives’ passage of the “One Big Beautiful Bill Act,” a comprehensive legislative package championed by former President Donald Trump, has raised concerns about its potential impact on global remittance flows, particularly to developing countries like Nigeria. The bill includes a provision for a 3.5% tax on money transfers sent abroad by non-citizens, encompassing green card holders and individuals on temporary visas. This tax, deducted at the point of transaction by financial institutions, has no exemption threshold, affecting even small transfers and potentially altering sender behavior. Nigeria, a major recipient of remittances, is projected to be significantly affected, potentially losing up to $215 million annually. This loss would have substantial ramifications for families that rely on these funds and the broader Nigerian economy. While the exact proportion of remittances originating from the US is unclear, estimates suggest that Nigerians in the US sent over $6 billion home in 2015, highlighting the potential magnitude of the impact.
The proposed tax threatens to disrupt the formal remittance landscape, potentially pushing senders towards informal, unregulated channels to avoid the additional cost. This shift could undermine efforts to track and monitor remittance flows, making it more difficult to leverage these funds for economic development initiatives. Africa, as a whole, received an estimated $94.8 billion in diaspora remittances in 2023, with Nigeria and Egypt being the largest recipients. Remittances play a crucial role in Nigeria, supporting household consumption and bolstering foreign reserves. The potential decline in remittances due to the proposed tax poses a significant challenge to Nigeria’s economic stability and growth prospects.
The tax, while not applicable to US citizens, will impact a significant portion of the immigrant population in the US, estimated at 47.8 million in 2023. The majority of these immigrants are legal residents, either naturalized citizens, green card holders, or individuals on temporary visas. The added cost of the remittance tax may compel migrants to send less money, reduce the frequency of transfers, or explore informal channels. This would negatively impact startups specializing in cross-border payments as customers might cease using formal remittance channels to avoid the tax. Such a shift to informal channels could further complicate the operations of these businesses and pose challenges for regulatory compliance.
The timing of this proposed tax coincides with Nigeria’s ongoing efforts to stabilize its foreign exchange market, combat inflation, and alleviate poverty. Remittances play a crucial role as a source of foreign currency and a lifeline for millions of Nigerian households. The Central Bank of Nigeria (CBN) recently launched the Non-Resident Bank Verification Number (NRBVN) platform, an initiative designed to streamline financial access for Nigerians in the diaspora. This platform allows Nigerians abroad to obtain their Bank Verification Number (BVN) remotely, eliminating the need for physical presence in Nigeria, with the aim of increasing monthly remittances to $1 billion. However, the proposed US tax threatens to undermine this goal.
Experts have voiced concerns about the potential implications of the proposed tax. Charles Sanni, CEO of Cowry Treasurers Limited, warns that the tax could significantly reduce remittance inflows into Nigeria, weakening foreign exchange reserves and putting further pressure on the economy. He also anticipates that the tax might encourage senders to use unofficial channels, bypassing regulated financial institutions and impacting Nigeria’s foreign reserves and fintech companies. This shift could also affect investment decisions by Nigerians abroad, potentially redirecting investments to locations with more favorable tax regimes. Sanni underscores the importance of remittances, not as direct government revenue, but as a crucial factor in supporting the balance of payments and stabilizing the naira.
Further expert analysis highlights the potential ripple effects of the proposed tax. Boniface Chizea, CEO of BIC Consultancy Services Limited, projects a negative impact on Nigeria’s trade balance, although the primary effect would be on trade flows rather than foreign exchange earnings from crude oil. He urges the government to bolster the crude oil sector and address the potential rise of informal economic activities due to the tax. Professor Akpan Ekpo, a renowned economist, echoes these concerns, predicting a decline in official remittances and an increase in informal transfers, which could have adverse consequences for the Nigerian economy. Manuel Orozco, director of the Migration, Remittances, and Development program at the Inter-American Dialogue, anticipates a shift towards informal channels, potentially involving crypto wallets and other less regulated methods. He also raises concerns about the potential for increased money laundering activities as demand for unauthorized channels grows. These insights underscore the wide-ranging implications of the proposed US remittance tax and its potential to disrupt global financial flows, particularly for remittance-dependent economies like Nigeria.
