Abuja, Nigeria – A new bill proposed in the United States Congress to impose a 3.5% tax on remittances sent abroad is drawing concern among economists and financial analysts in Nigeria. The proposed legislation, titled the “Border Tax Equity Act”, seeks to generate revenue from remittances sent by immigrants to countries including Mexico, the Philippines, India, and Nigeria.

If passed, the bill could have far-reaching implications for Nigeria, where diaspora remittances are a vital source of foreign exchange and a stabilizing factor for the nation’s fragile currency, the naira.

Why Remittances Matter to Nigeria

According to the World Bank, Nigeria received over $20 billion in remittances in 2022, making it the highest in Sub-Saharan Africa and among the top 10 global recipients. These remittances, primarily from Nigerians living in the U.S., UK, Canada, and the EU, help support families, fund small businesses, and contribute to social welfare and national reserves.

With foreign direct investment (FDI) dwindling and crude oil revenue facing market volatility, remittances have become an essential source of dollar inflow into Nigeria’s economy. These funds help ease pressure on the foreign exchange market, which is struggling to maintain a stable exchange rate for the naira.

Experts Warn of Ripple Effects

Financial analysts warn that the proposed U.S. tax could discourage remittances or drive Nigerians abroad to use informal channels, both of which would reduce official dollar inflows.

“A 3.5% levy on money sent to Nigeria could significantly shrink formal remittance volumes,” said Bismarck Rewane, CEO of Financial Derivatives Company. “That, in turn, would reduce dollar liquidity in Nigeria, putting further pressure on the naira.”

The Central Bank of Nigeria (CBN) has already struggled to maintain stable exchange rates. In early 2024, the naira depreciated sharply amid forex scarcity, prompting the CBN to intervene by liberalizing exchange rates and clamping down on speculative trading.

Government and Diaspora Reactions

While the bill is still under deliberation in the U.S. legislative process, Nigerian officials and members of the diaspora community have voiced concern. The Nigerian Embassy in Washington D.C. has not issued an official statement, but senior diplomatic sources indicate efforts are underway to engage U.S. lawmakers on the implications for Nigerian families and development efforts.

Diaspora groups, including the Nigerian-American Public Affairs Committee (NAPAC), have also criticized the bill as punitive and counterproductive, arguing that it will hurt both sending and receiving countries.

“This tax punishes immigrants for supporting their families and communities back home. It’s not just economic—it’s a human issue,” said NAPAC spokesperson Dr. Nkem Okafor.

Alternatives and Mitigation Strategies

In light of the proposed legislation, Nigerian financial institutions may need to:

• Promote local remittance platforms and fintech services to offer competitive transfer rates.

• Strengthen bilateral negotiations between Nigeria and the U.S. on economic and diaspora policies.

• Encourage diversification of forex sources, including tourism, non-oil exports, and digital services.

Meanwhile, the Nigerian government is being urged to prioritize diaspora engagement and offer incentives for formal remittance channels, especially under the Diaspora Bond initiative and the National Diaspora Policy.

What’s Next?

While the U.S. bill is still at the proposal stage, its potential to impact Nigeria’s economy is already generating concern among stakeholders in Abuja and beyond. The outcome could significantly influence the exchange rate trajectory, monetary policy decisions, and diaspora relations.

As global economic dynamics shift, Nigeria must navigate these developments with strategic diplomacy and domestic reforms to preserve the vital inflow of foreign currency through remittances.

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Last Updated on June 9, 2025 by kingstar