Nigeria’s foreign exchange earnings from diaspora remittances may suffer a major blow following the passage of a new bill in the United States that seeks to impose a 3.5 per cent tax on money transfers sent by non-citizens to recipients abroad.
The provision is contained in the “One Big Beautiful Bill Act,” a sweeping legislative package by US President Donald Trump and recently passed by the US House of Representatives.
If enacted into law, the remittance tax will apply to all international money transfers made by individuals who are not US citizens, including green card holders and temporary visa recipients. The tax is expected to be deducted at the point of transaction by banks and remittance platforms and remitted to the US Treasury on a quarterly basis.
With no exemption threshold, the tax will affect even the smallest of transfers and could significantly alter the behaviour of senders. Nigeria, one of the top recipients of remittances globally, is expected to be among the hardest hit.
According to the Central Bank of Nigeria, personal remittances into the country reached $20.93bn in 2024, making it the highest level in five years and a critical component of Nigeria’s balance of payments.
The figure rose by 8.9 per cent year-on-year, the CBN noted earlier in April this year. The Centre for Global Development ranked Nigeria among the top 10 countries most exposed to the proposed tax, alongside Mexico, India, China, and the Philippines, among others.
The organisation also noted that the 3.5 per cent levy could cost Nigeria as much as $215m annually in lost remittance value, with wider implications for families and the economy.
Although it is not currently clear what portion of the remittance comes from the US, Nigerians in the United States were estimated to have sent over $6bn home based on available research as of 2015.
The new tax, if enforced, could discourage formal remittance transactions and push senders towards unregulated informal channels to avoid extra costs.
According to the Agusto Diaspora Remittance Industry Report, Africa received an estimated $94.8bn in diaspora remittances in 2023, with Egypt and Nigeria being the primary recipients, accounting for nearly half of the continent’s inflows.
The rating company said that in Nigeria, remittances have not only supported household consumption but have also significantly strengthened foreign reserves.
“The sustained inflow of funds highlights the diaspora’s commitment to family and community welfare, emphasising the growing importance of remittances in the country’s economic landscape,” a part of the report read.
Although the proposed tax would not apply to US citizens, it will affect about 47.8 million immigrants residing in the United States as of 2023, according to the latest American Community Survey from the US Census Bureau.
Of them, nearly three-quarters were in the country legally as naturalised citizens, legal permanent residents (also known as green card holders), or holders of temporary visas.
If passed, the tax bill could force many migrants to send less money home or transfer funds less frequently, due to the added cost, or seek informal channels. Also, analysts said that startups that specialise in cross-border payments will be affected if customers stop sending money through formal channels.
Analysts at Barclays Bank warned that if the law passes, providers with undocumented clients will face major difficulties. They noted that the bill also requires money transfer companies to verify and report the citizenship status of their users.
“In the short term, the biggest disruptions may come in cash-based and retail payment channels. This adds complexity and cost to an already sensitive space,” Barclays said in a note to clients.
This development is coming at a time when Nigeria is making an effort to stabilise its foreign exchange market while addressing inflation and rising poverty. Remittances serve as a major source of foreign currency inflows and a financial lifeline for millions of Nigerian households.
Meanwhile, the Central Bank of Nigeria recently unveiled a new initiative aimed at boosting diaspora remittances. The CBN, in collaboration with the Nigeria Inter-Bank Settlement System, launched the Non-Resident Bank Verification Number platform, an initiative aimed at enhancing financial access for Nigerians in the diaspora.
The platform, which enables Nigerians abroad to obtain their Bank Verification Number remotely, removes the need for physical presence in Nigeria. With the launch of the NRBVN, the CBN is targeting $1bn in monthly remittances.
“With the introduction of NRBVN and complementary policy measures, we are optimistic about achieving our ambitious target of $1bn in monthly remittance flows, a goal we believe is entirely achievable given the growing trust and convenience in formal remittance channels,” the CBN Governor, Mr Olayemi Cardoso, said.
However, the $1bn monthly target seems to be under threat with the proposed Trump bill. Speaking on the matter, the Chief Executive Officer of Cowry Treasurers Limited, Charles Sanni, has warned that the new tax policy introduced by the United States government on international money transfers could significantly reduce diaspora remittances into Nigeria, thereby weakening foreign exchange reserves and further pressuring the nation’s economy.
Sanni, who spoke in an interview with The Punch on Thursday, said the deduction on remittances, which will apply to money sent from the United States to countries like Nigeria, would discourage inflows and push senders to explore unofficial and unregulated channels.
“When we look at it from the angle of diaspora remittances, what it means is that it will obviously have a way of reducing what would ordinarily come as a flow to Nigeria as a country and as social support to household units because of the five per cent deduction,” he explained.
“The US is saying ‘America First,’ so it is discouraging outflows, and that is what will have a negative impact on both senders and beneficiaries. The senders are paying double tax on money, having earlier been taxed at the point of receiving salary. This will certainly force senders to seek unofficial channels, which will not be to the advantage of Nigerian reserves and fintechs.”
Sanni noted that the new tax regime could create investment redirection among Nigerian investors abroad. “Looking at it from the other side of the new tax bill, it means that people will begin to search for areas where the taxes or tax regimes will not be effective on their investments. The relief, in this case, is for those who are high-net-worth investors because of the reduction in that category,” he said.
While diaspora remittances do not count as government income, Sanni emphasised their importance in supporting the balance of payments and stabilising the naira.
“Diaspora remittances are not income to the government, although they help boost our balance of payments. That means now, it will reduce the inflow—an inflow that would have helped stabilise our exchange rate,” he stated.
He said the government may be forced to cover the foreign exchange gap through new taxes, borrowing, or the sale of national assets. “The government may try to cover up the gap with taxes, increase crude oil production, take more loans, or the sale of assets,” he said.
According to him, the country’s debt servicing burden could also worsen if dollar inflows from the diaspora dry up. “On the part of debt servicing, it will obviously have a negative impact on the country. The government has said that it wants to borrow. This is the time to talk to Dangote and put the refinery into optimal production, which will give us a higher level of income and dollar inflows from crude oil derivatives,” Sanni added.
He urged Nigerians to prepare for tougher times ahead, warning that households depending on foreign remittances may be severely impacted.
“The masses need to tighten their belts, and it’s not about the growth in GDP but about the actual level of development and disposable income, particularly for those who enjoy social subsidies from relatives abroad,” he said. “All of this may lead to further wage increase agitation, and it is going to be an issue,” he warned.
Also speaking, the Chief Executive Officer of BIC Consultancy Services Limited, Boniface Chizea, said the current tariff hike would negatively impact Nigeria’s trade balance and potentially give rise to a more active underground economy if not properly addressed.
“The tariff increase will worsen our trade balance. It may not directly impact Nigeria in terms of foreign exchange earnings, since crude oil is our major source, but it will affect trade flows generally,” Chizea said.
He called on the government to do more to secure and strengthen the crude oil sector, warning that failure to do so could open the door to informal and unregulated economic activity.
Renowned economist, Professor Akpan Ekpo, feared that the bill would have a negative outcome on the Nigerian economy, even as remittance through unofficial means may increase.
He said, “It will reduce the amount of official remittances to Nigeria by Nigerians and increase the illegal way of remittance, and that is not good for the economy because remittances help the economy a lot. The money sent to Nigeria from the US, apart from investment, helps to resolve some social needs of families here in Nigeria. And in this time of economic hardship, it is not a good development.
“I think the US wants to increase its revenue. Definitely, it will affect our economy here. The only thing is we need to now look at internal sources of raising our revenue here because we don’t know what else the US will do.”
Maintaining the same stance, the director of the Migration, Remittances, and Development program at the Inter-American Dialogue think tank, Manuel Orozco, said people will find other ways to send money.
He said, “The use of informal, unlicensed, and unauthorised fund transfers in the twenty-first century is a complex matter because many financial payment companies are not necessarily registered as money services businesses, yet they can still perform cross-border transactions.
“Remittance senders may utilise these services, including crypto wallets, to send money, as they are not regulated as a remittance transfer per existing law. Some crypto analysts may view this shift as a threat to their mechanisms that could disrupt existing volume, forcing them to shift toward regulation before the US Treasury and state authorities.”
Orozco warned that this move could also lead to a rise in money laundering, saying, “Other means of remitting may go under the regulatory radar, such as using existing debit cards shared with families in different countries for transactions.
“The primary risk, however, is that an increase in demand for unauthorised channels may lead individuals to establish cross-border payment outfits to perform US dollar, stablecoin, or cryptocurrency transfers through a backend processor, remaining under the radar. Such outfits, once demand increases, could conveniently take the risk of offering services to people interested in money laundering.”
(Punch)
