In a sweeping legislative move, Donald Trump’s "One, Big, Beautiful Bill Act" includes a controversial provision that proposes a 3.5% tax on remittances sent overseas by foreign workers, including those with green cards and temporary work visas. This clause could heavily affect India, which has remained the world’s largest recipient of remittances for over a decade.
According to experts, the implications of this proposed tax are dire for India, which saw remittances amounting to $119 billion in 2023 alone. This influx of money is crucial for covering essential expenses, such as healthcare and education, for families relying on support from overseas workers. A blunt tax on remittances may push migrant workers to resort to informal transfer methods, which would circumvent the official financial system.
India's dominance in receiving remittances had been steadily increasing, driven largely by its global IT workforce and skilled labor migrating to countries such as the US. The contribution of remittances has been significant, accounting for roughly 3% of India’s GDP and serving as a reliable source of foreign exchange and support for household consumption.
However, the potential tax could result in a major downward shift in these flows, with estimates suggesting a decline of 10-15% may lead to losses of approximately $12-18 billion annually, exacerbating the existing economic pressures in India. Experts fear that such changes could undermine essential household budgets in states like Kerala and Uttar Pradesh, where remittances play a critical role.
India’s remittance ecosystem has also thrived on technological advancements allowing for lower transfer costs. Should the tax be approved, the financial burden may shift households to prioritize immediate consumption needs over long-term savings and investments, significantly affecting economic growth.
While the move has raised alarms among financial analysts and policymakers, the proposal still has to navigate through the US Senate and secure the President's approval. Experts, including Dilip Ratha from the World Bank, express concerns over the possible migration of remittance flows to informal networks, and the broader implications it holds for unauthorized migrants, who often lack direct access to formal financial services.
Despite the fear surrounding this proposed legislation, Ratha emphasizes that the primary motivation for migration remains the need to support family members back home, and thus a tax may not significantly deter remittance flows overall.
