Recently, a number of rich countries that host a large number of migrants are considering taxation of outward remittances, in part to raise revenue, and in part to discourage undocumented migrants. The list of countries where such taxes are being considered includes Bahrain, Kuwait, Oman, Saudi Arabia, the United States, and the United Arab Emirates. (In the United States, Oklahoma taxes remittances at the rate of $5 for the first $500 and 1% thereafter. Two other states, Georgia and Iowa, are considering taxes that may have a wider scope by taxing not just remittances but also other transfers.
We outline below nine reasons why taxing outward remittance flows is a bad idea:
- A tax on remittances, especially if it is applied selectively to the nationals of a country, can redirect flows through third countries. (Anecdotally, a U.S. ban on remittances to Iran has forced Iranians in the United States to send money through Europe or the UAE.) If so, migrants will have to pay remittance fees twice.
- To the extent that remittance channels are used also for small-value transfers for purposes of trade, tourism, investment and philanthropy, these latter variables will also be impacted by a tax on remittances.
- Since the income of migrants has, in principle, already been taxed in the host country, taxing remittances amounts to double taxation for tax-paying migrants. Since remittances are usually sent to poor families of migrants, the tax would be born ultimately by them and therefore it is likely to be highly regressive.
- A tax on remittances will raise the cost of remittances, in direct contravention to the G20 commitments and the Sustainable Development Goal of reducing remittance costs and increasing financial inclusion
- A tax on remittances would affect the volume of business of remittance service providers, thereby reducing their tax payments
- A tax on remittances may contribute to driving expatriate employees and entrepreneurs to other countries with lower taxes.
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