Africa-Press – Botswana. As remittances remain vital to African economies, a new US tax poses a threat to formal money transfers, potentially pushing funds toward informal and risk-prone channels.
On July 4, US President Donald Trump signed the “One Big Beautiful Bill,” a comprehensive budget law that introduces a 1% tax on money transfers from the United States to other countries. Set to take effect on January 1, 2026, the policy was passed by Congress as part of a broader deal to finance immigration and homeland security initiatives. The original proposal in the House of Representatives called for a 3.5% rate, but it was later reduced to 1%.
A high-impact measure for Africa
The United States ranks as the primary origin of remittances to many African nations, such as Kenya and Nigeria, leaving the continent especially exposed to the effects of this tax. In 2023, Africa received $100 billion in remittance inflows, accounting for nearly 6% of its GDP, based on data from the United Nations. This figure exceeded both official development aid, which stood at $42 billion, and foreign direct investment at $48 billion during the same year.
“Remittances remain among the rare forms of private external finance projected to grow in the years ahead. They should be more actively leveraged to support development, particularly through tools like diaspora bonds,” said Dilip Ratha, Senior Economist at the World Bank.
Although major economies such as Nigeria, Egypt, Kenya, and Morocco collect the largest share of remittance inflows, smaller countries tend to depend on them even more. In 2023, remittances accounted for more than 20% of the GDP in both Lesotho and the Comoros, based on World Bank figures.
The proposed 1% tax would be an additional burden on top of existing charges by remittance services such as Western Union and MoneyGram. In sub-Saharan Africa, where remittance costs are already the highest worldwide, sending $200 incurred an average fee of 7.9% in Q4 2023, rising from 7.4% the previous year.
Rising remittance costs may drive more senders to use informal channels, which, while less expensive, pose higher risks in terms of security and transparency.
A report by the Center for Global Development (CGD) projects that the proposed tax could reduce remittance volumes by 1.6%. Nigeria faces the largest potential loss at $168.2 million, followed by Egypt with $54.15 million, Kenya with $38.11 million, and Ghana with $33.63 million.
Although the US federal government might generate only limited revenue from the tax, the broader impact on African economies could be severe, potentially leading to diminished foreign exchange, weaker consumer spending, and a decline in household investments that could worsen existing economic challenges.
For More News And Analysis About Botswana Follow Africa-Press
