Mexico | A remittance tax would be unfair, regressive, and have limited impact

Summary

The U.S. House of Representatives proposed a 5% tax on remittances sent by undocumented migrants to any global destination. This tax would be unfair, regressive, and contrary to international agreements, but would have limited effects and would not significantly affect the balance of payments.

Key points

• Key points:
• In 2024, Mexico received $62.5 billion in remittances from the United States, sent by 8 million Mexican-born individuals with legal status (citizens or residents), in addition to millions more second-generation Mexicans. The universe potentially affected by a tax would be the approximately 4 million undocumented Mexicans residing in the United States.
• With the tax, the cost of sending $350 from the U.S. to Mexico would increase from $6.00 to $23.50 (almost four times the current cost). This significant price distortion would force undocumented migrants to seek alternative ways to send money.
• Three alternatives have been identified that could be used to avoid the tax: 1) seeking support from family members or friends with U.S. citizenship or residency; 2) opting for banking access to receive remittances through interbank transfers; and 3) using informal remittance channels.
• If the tax promotes the use of informal channels for sending remittances, and these become stronger, it could encourage the participation of criminal organizations in these activities.
• In an initial estimate, the remittance flows that could be most affected by this tax would be, in an extreme scenario, those from Tamaulipas (-4.4%), Guerrero (-4.3%), Puebla (-3.6%), Oaxaca (-3.6%), and Veracruz (-3.4%). Mexican authorities and financial institutions must respond to this challenge by increasing the level of financial inclusion, which would contribute to the current administration's digitalization agenda.

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