The US government is contemplating a new law that will charge a 5 per cent tax on money sent out of the country by non-citizens.
The Bill dubbed 'One Big, Beautiful Bill' slaps a 5 per cent tax on all outbound remittances from the US, exempting only verified US citizens that are using approved providers.
"This provision imposes a five per cent excise tax on remittance transfers, which will be paid for by the sender of such transfers. The provision requires that the tax be collected by the remittance transfer providers, and the remittance transfer providers are responsible for remitting such tax quarterly to the Secretary of the Treasury," the draft bill read in part.
This means that if someone in the US sends Ksh128,750 ($1,000) to their family in another country, Ksh6,437.50 ($50) would be deducted as tax before the money reaches its destination.
While the US aims to support tax relief measures and fund border security efforts for US citizens, the move greatly threatens countries whose GDPs benefit from foreign remittances, including Kenya.
Families who also rely on the money sent by their kin in the US will also feel the pinch as the amount is set to reduce drastically.
Whether someone is sending monthly allowances, paying for a sibling’s education, or making property investments, every transfer will now be marginally reduced in value.
Diaspora remittances play a significant role in Kenya’s economy. In 2024, remittances contributed 4.6 per cent to Kenya’s GDP, marking a steady increase from 3.92 per cent in 2023.
Remittance also plays a key role in Kenya’s currency and financial markets, ensuring the shilling remains resilient. They increase foreign currency inflows, including the dollar, easing pressure on the shilling. A tax on remittances would mean a reduced inflow, threatening the shilling's performance against the dollar.
The total remittances received in 2024 amounted to Ksh537.6 billion ($4.8 billion), making Kenya one of the top recipients of diaspora remittances in East Africa.
If successfully introduced, the levy will be deducted at the point of transaction and apply universally across all legitimate remittance channels, including traditional bank wire transfers and digital remittance platforms.
The House Republicans aim to pass the Bill by Memorial Day, May 26 after which it would be headed to the Senate. Lawmakers hope to have it signed into law by July 4.
