Buried on page 327 of what U.S House Republicans are hailing as “the one, big, beautiful bill,” a proposal by the Trump administration to impose a 5% tax on remittances is poised to sting.
The proposed levy, tucked into the House Ways and Means Committee’s new tax plan, targets electronic money transfers that have increasingly, helped fund investments, basic needs, and prop up economies.According to the World Bank, a total of US$93 billion was sent from the U.S to other countries abroad in the form of remittances.Kenyans in the U.S have consistently accounted for more than half of the total remittances to Kenya — hitting US$222.7 million in March — a 10% growth from February.
The proposed tax on remittances will cover an estimated 40 million people, including green card holders and individuals with H-1B, H-2A and H-2B visas. Only U.S. citizens are exempted.
The tax would be implemented by ensuring financial institutions and money transfer services are tasked with collecting the 5% levy at the point of transaction, regardless of the amount or purpose of the transfer.
Kenya relies heavily on remittances, as the biggest source of foreign exchange, to beef up its foreign reserves and stabilize the shilling. According to the Central Bank of Kenya (CBK), the country’s foreign reserves currently stand at US$10.3 billion — approximately 4.6 months of imports. The impact of the tax would see remittances from the U.S shrink, risking the country’s monetary health.
With migration to the US becoming increasingly harder, focus has been shifting to the Gulf, Asia, and other African countries. Given the primary place of remittances in this matrix, the government has consistently pushed for Kenyan citizens to migrate to other countries to find work. This has included working in the Gulf, which now contributes a large share of total remittances, despite the murky reputation of mistreatment and slave-like conditions.
In addition to the macroeconomic effects of Trump’s proposed tax, the World Bank has previously said that taxing remittances risks penalizing already-taxed migrant incomes and disproportionately impacts the poor families who depend on these funds. Such levies are inherently regressive and clash with global goals to reduce remittance costs and expand financial inclusion.
Evidence also suggests the fiscal payoff is marginal, and it would be double taxation as income earned is already taxed. Lower or more expensive remittances would also affect the many fintechs that have sprung up on the continent and beyond to facilitate the process.
According to the founder and CEO of PayInc Group — Jones Amegbor — the 5% levy could ‘unravel years of work’ that fintechs have achieved in streamlining Cross-Border financial transactions. He said that the bill’s proposal could drive the transactions underground, away from the clutches of regulation.
“We have worked hard to build trust, reliability , and formal rails that protect senders and recipients alike. One can only hope that clearer heads prevail and this bill falls swiftly,” Amegbor said.
The tax proposal comes in the wake of Republican overall hostility to illegal immigration, focus on boosting taxes, and ongoing attempts to reshape how the US trades and interacts with the rest of the world. If the bill is passed by the House of Representatives by May 25th, it could be signed into law by early July.