By Olaitan Ibrahim
Nigeria’s foreign exchange earnings have come under fresh threat following plans by the United States’ Congress to impose a five per cent tax on all diaspora remittances.
The Bill, unveiled by the House Republicans on Monday, is aimed at curbing money transfers to foreign countries.
The tax would be paid by the sender and collected quarterly by the US Treasury Department.
Verified US citizens would be exempted from the levy and could claim it as a credit. The Bill also exempts remittances sent via authorized providers by verified US senders.
Key vote on the Bill expected this week with a committee vote on the Bill already held yesterday. A full House vote is expected before May 26.
For decades, the United States has consistently been the top remittance-sending country. According to the International Organisation for Migration, the US accounted for a total outflow of $79 billion in 2022, followed by Saudi Arabia ($39 billion), Switzerland ($31.9 billion), and Germany ($25.6 billion).
Within the same period, Nigeria emerged on the top ten remittance recipient in the world, ranking the number nine with $20.1 billion behind countries like India ($111.2bn), Mexico ($61.1bn), China ($51bn), Philippines ($38bn), France ($30bn), Pakistan ($29.9bn), Egypt and Bangladesh with $28.3bn and $21.5 bn respectively.
However, economy analysts, who spoke to on the development, noted that the Bill if passed by
the US lawmakers, would result in decline in net value of remittance inflow into the country and may lead to further drop in the value of the Naira.
While the proposed tax broadly affects immigrant families, it poses a challenge for the country as remittances from the Nigerian diaspora have become a major mainstay of the country’s economy. At the macro level, diaspora remittances represent the second-largest source of foreign exchange inflow into the country, second only to crude oil earnings.
Remittance inflow to Nigeria
Available data indicate that diasporan Nigerians remit between $20 billion and $25 billion annually, while diaspora remittances contributed an estimated six percent to Nigeria’s GDP in 2024, according to the World Bank.
The Central Bank of Nigeria, CBN, reported that remittance flows into the Nigerian economy rose by nine percent to $20.98 billion in 2024, marking the highest level in five years.
Inflows from International Money Transfer Operators (IMTOs) surged significantly by 43.5 percent, rising to $4.73 billion from $3.30 billion in 2023, while personal remittances increased by 8.9 percent to $20.93 billion, with significant growth from IMTOs.
Resultantly, Nigeria’s external reserves grew by $6.0 billion, reaching $40.19 billion by the end of 2024, thereby strengthening the country’s external financial buffer.
Reacting to the proposed tax, expected to send shockwaves through the immigrant communities, the analysts said that this would serve as a disincentive for senders remitting funds to Nigeria.
It’ll have negative impact on FX inflows – Muda Yusuf
In his reaction, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the development will negatively impact the inflow of foreign exchange (FX) into Nigeria.
His words: “Of course, this will have a negative impact on the remittance inflow Into Nigeria and many other countries that have a very high diaspora population in the United States.
“And for Nigeria, remittance is a major component of our forex inflow. Annually, remittance generally accounts for over twenty billion US dollars of our forex inflows. So, this, definitely, will have a negative impact on remittances. This may discourage remittances no doubt. For me, this will be the main worry about this kind of tax.
“Obviously, the US government is putting this in to prevent outflows of resources from their country, although it’s not a particularly good policy but it is what it is. So, the impact on remittances will definitely be negative.”
Household consumption expenditure may take a hit — Tunde Abidoye
Speaking in the same vein, Tunde Abidoye, Head of Equity Research, FBN Quest Merchant Bank noted that the development would not only lead to a drop in the overall/ net value of remittance inflow into the country, but would result in reduction in overall household expenditure and consumption of beneficiaries dependent on the remittances.
“Since the US is one of the largest sources of inbound remittance inflows into Nigeria, a material drop in remittances from that country may have adverse consequences on Nigeria’s FX liquidity position,” he said.
“A drop in the overall/ net value of remittance inflow into the country. Apart from a reduction in the net value, the tax might be a disincentive for senders remitting funds to Nigeria. There are also implications for beneficiaries in Nigeria as this may likely reduce their overall disposable income and consumption. As a result, household consumption expenditure may take a hit.
Value of Naira, budget to be impacted – David Adonri
David Adonri, Vice Chairman, Highcap Securities, stated that this might have a significant negative impact on the value of the Naira following the expected drop in dollars supply to Nigeria’s foreign Exchange market
“The remittances from US-based Nigerians constitute the bulk of diaspora remittances to Nigeria. The imposition of a five percent levy planned by US Congress will adversely affect the volume of diaspora remittances to Nigeria.
“The pass through effect of this policy can cause reduction in the supply of dollars to Nigeria’s foreign Exchange market and negatively impact the value of the Naira.
“The policy may also adversely affect the budget since diaspora remittances contribute significantly to financing it. It is against this background that the domestication of Nigeria’s economy must be pursued with iron determination to mitigate the risk of an external shock of this nature,” he remarked.
It’ll affect gross value of remittances into Nigeria — Tajudeen Olayinka
Tajudeen Olayinka, Investment Banker & Chartered Stockbroker, said : “I think the U.S. government might be using that to discourage outflows from the country, in view of recent reactions from foreign portfolio investors, especially foreign governments, who sold off heavily on U.S. Treasury Bonds during the trade war face-off.
“The outcome of that sell-off wasn’t palatable for the U.S. economy. So, a five percent charge on financial transfers from the U.S. will hurt many developing economies that rely heavily on remittances from their nationals in the U.S.. It will affect the gross value of remittances into Nigeria”.
Policy makers need to devise ways to mitigate effect – Amolegbe
On his part, Olatunde Amolegbe, former President, Chartered Institute of Stockbrokers, CIS, said: “This is likely to impact developing countries such as Nigeria significantly given our relative reliance on remittances as a source of FX .Our policy makers will need to evaluate its impact and device ways to mitigate it as soon as possible.”
It could potentially lead to a reduction in remittance inflows- Egbomeade
Reacting as well, analyst and communications expert, Clifford Egbomeade, said: “The proposed 5% tax on international money transfers from U.S. residents to recipients in foreign countries could have substantial implications for Nigeria’s economy, given its heavy reliance on remittances.
“For many Nigerian households that depend heavily on these funds for their day-to-day living expenses, education, and health services, even a slight dip in remittance volume could have significant consequences. This decline in inflows would not only affect individual households but also ripple through the broader economy, impacting consumption and local businesses that rely on diaspora support.”