Africa-Press – Uganda. A clause in Donald Trump’s ambitious new legislative push—that he has dubbed the “One, Big, Beautiful Bill Act”—has triggered fresh anxieties in Uganda.
The proposed 3.5% tax on remittances sent abroad by foreign workers in the United States, including those with green cards and temporary work visas like H-1Bs, could see billions diverted away from developing countries—and Uganda is among the most exposed.
This comes at a time when the government is increasingly banking on diaspora remittances to stabilise the economy that has been rattled by US aid freeze.
Finance Minister Matia Kasaija, who has long lamented low tax compliance at home, has been appealing to Ugandans to support the national budget to avoid excessive borrowing.
Ironically, the very money his ministry is counting on may now be caught in Trump’s crosshairs.
Remittances to Uganda hit a record $1.42 billion in the 12 months ending January 2024, up 13.4% from the previous year’s $1.25 billion.
This inflow now accounts for 5.2% of Uganda’s GDP, surpassing traditional aid in both consistency and volume.
Recognising this trend, the Bank of Uganda recently rolled out a transaction-level reporting system to monitor and reduce high remittance costs, which currently average 15%.
The remittance surge has also been integrated into Uganda’s second National Financial Inclusion Strategy.
Officials are working with East African Community partners to harmonise diaspora policies and launch targeted investment vehicles to encourage use of formal channels.
These initiatives, however, could be dealt a heavy blow if Trump’s proposal becomes law.
Uganda is not alone in its concern. India—the world’s top recipient of remittances—is sounding the alarm.
In 2023, Indians abroad sent home a staggering $119 billion, more than the country received in foreign direct investment.
Much of it came from the US, where millions of Indians, including highly skilled professionals, live and work.
The funds help millions of Indian families afford healthcare, education, food, and shelter, particularly in states like Kerala, Uttar Pradesh, and Bihar.
Ajay Srivastava of the Global Trade Research Initiative warned that the tax could slash India’s remittance inflows by 10–15%, costing the economy between $12 and $18 billion each year.
He predicted tighter dollar supply, pressure on the rupee, and more aggressive intervention from the Reserve Bank of India.
India’s migrant population has grown from 6.6 million in 1990 to 18.5 million in 2024, and the country now claims 14% of global remittances.
But as economist Dilip Ratha of the World Bank notes, taxing these flows might backfire.
“Migrants won’t stop sending money; they’ll find other ways—cash couriers, friends, or even bus drivers,” he told the BBC.
“The real risk is a shift to informal channels and a loss of transparency.”
That risk applies equally to Uganda, where the informal economy already poses regulatory challenges.
With such a tax in place, many Ugandan migrants may turn to unregulated options like hawala systems or cryptocurrency-based transfers—mechanisms difficult to track and prone to fraud.
Remittances play a critical role in the daily survival of Ugandan households, especially in rural areas. Families use the money to cover food, healthcare, school fees, and small business operations.
The funds also bolster Uganda’s foreign reserves and cushion the shilling against depreciation. A sharp fall in remittances could erode this buffer, triggering inflation and raising the cost of imported goods.
A policy brief by India’s Centre for WTO Studies highlighted that reduced remittances shrink domestic consumption and limit household investment.
Uganda, where economic recovery remains fragile, could face similar consequences, with household priorities shifting from savings and investment to mere subsistence.
Globally, the implications extend beyond Uganda and India. Countries such as Mexico, the Philippines, China, Pakistan, and Bangladesh—among the top 10 remittance recipients—are all watching developments in Washington with concern.
Many rely heavily on funds from migrants in the United States, and a uniform tax could mean billions in combined losses.
As debate continues in the US Senate over the final shape of Trump’s “One, Big, Beautiful Bill Act,” uncertainty lingers.
The remittance tax remains a small clause in a much larger political battle, but its ramifications are being felt worldwide.
“Will this tax deter migration? Probably not,” said Dilip Ratha. “A minimum-wage job in the US still pays many times more than work back home. But the way money moves may change—and that’s what governments should be worried about.”
For Uganda, which has just begun crafting policies to court its diaspora and harness remittances more efficiently, the proposed tax is not just a foreign policy issue—it’s a direct threat to its economic future.
Source: Nilepost News
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