In this file photo, workers continue work raising a taller fence in the Mexico-US border area separating the towns of Anapra, Mexico and Sunland Park. (Photos: AP)
American citizens have suggested that, in order to fund the construction of a wall between Mexico and the United States, there are other ways to raise the money besides a tax on remittances — a serious proposal made by the Government of the United States regarding funds sent from the US to some countries in Latin America and the Caribbean, including Jamaica.
One male from the Midwest who declined to be identified commented: “When you consider the crazy salaries and pensions our politicians receive and the amount we spend on our military, one realises that budget cuts could be made in places like these to save [money] instead. But that’s in an ideal world where we don’t live, apparently.”
The proposed tax is a two per cent levy on outgoing remittances.
Introduced in the United States (US) House of Representatives on March 30, 2017, the proposed Bill entitled the “Border Wall Funding Act of 2017”, would amend the Electronic Fund Transfer Act by imposing the two per cent fee on the US dollar value of remittances (before any remittance transfer fees) to the countries listed.
These are Mexico, Guatemala, Belize, Cuba, the Cayman Islands, Haiti, the Dominican Republic, The Bahamas, Turks and Caicos, Jamaica, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, Aruba, Curacao, the British Virgin Islands, Anguilla, Antigua and Barbuda, St Kitts and Nevis, Montserrat, Guadeloupe, Dominica, Martinique, St Lucia, St Vincent and the Grenadines, Barbados, Grenada, Guyana, Suriname, French Guiana, Ecuador, Peru, Brazil, Bolivia, Chile, Paraguay, Uruguay, and Argentina.
Recent commentary issuing from the International Monetary Fund (IMF) concludes that taxation of remittances is not a new idea, and is actually being considered by nations other than the United States.
IMF blogger Dilip Ratha and co-authors Supriyo De and Kirsten Schuettler say a number of wealthy nations with high migrant populations are considering taxation of outward remittances, in part to raise revenue, and in part to discourage undocumented migrants.
The nations include Bahrain, Kuwait, Oman, Saudi Arabia, United States, and United Arab Emirates.
Notably, they said, in the United States, Oklahoma taxes remittances at the rate of US$5 for the first US$500 and one per cent thereafter. Two other states, Georgia and Iowa, are considering taxes that may have a wider scope by taxing not only remittances, but also other transfers, the IMF writers note.
In 2016, migrant remittance flows to developing countries amounted to US$440 billion, more than three times the size of official development aid flows.
The IMF authors concluded that any tax was a bad idea, drawing from the experience of the past.
They note in their blog: “In the past, many developing countries have been tempted to tax inward flows of remittances, but in the end, very few countries actually did. The drawbacks of taxing inward remittances are similar to those of taxing outward flows. Taxes can drive remittances to informal channels, making tax collection difficult and costly.”
They added: “A few countries that had such taxes on inward remittances ended up removing them. Vietnam removed its five per cent tax on remittances in 1997 and found that remittances through formal channels increased.
“Removal of Tajikistan’s State tax on cross-border bank transactions in 2003 may have helped raise formal remittances from US$78 million in 2002 to US$256 million in 2003.”
A consulting report conducted for Western Union by the Business Research Division of the Leeds School of Business, University of Colorado Boulder, and authored by Miles K Light and Brian Lewandowski, reflects the same conclusions.
Published in December 2015, the authors concluded: “We find that while remittance taxes may seem attractive as a fast and stable source of government funds, they would generate substantial distortions by encouraging parties to return to the old methods of informal transfers.”
They noted as well that policy restrictions imposed within the source country can also discourage formal remittances in favour of informal channels.
The United States congress has also considered a Bill that would prohibit transfer services, such as Western Union, from transmitting funds unless the sending party can render valid, US government-issued identification.
“Such actions are likely to incur similar distortions as a remittance tax, but worse, they would yield no revenues for the recipient country or the source country,” Light and Lewandowski said.
