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How Trump plans to tax remittances from Kenyans in US
Kenya in 2024 received $2.63 billion (about Sh339.17 billion) in remittances from the US, an equivalent of two percent of the Sh16.22 trillion gross domestic product.
President Donald Trump’s administration is progressing with a proposal to impose an excise tax on money transferred from the US to other countries by non-citizens.
The proposed levy is part of a wider scheme by the US government to stop illegal migration and deport nearly 12 million undocumented migrants.
The proposed levy is tucked in the 1,116-page of ‘One Big Beautiful Bill’— Mr Trump’s priority document outlining reforms and spending cuts for his administration.
This new tax proposal will apply to money transfers by individuals from the US to other countries. This is not an income tax, but a transaction-based levy—meaning it will apply every time a Kenyan in the US sends money back home.
What is the rate of the proposed tax?
The original proposal as contained in the 'One Big Beautiful Bill' was 5.0 percent of the value of the cash being sent abroad by persons who are not US citizens and nationals.
However, the US House of Representatives on Thursday last week amended the proposal, lowering it to 3.5 percent.
Who will be affected by the proposed tax?
The bill largely targets non-citizens in the US, including Green Card holders — Kenyans with permanent resident status in the US.
The tax will also impact highly skilled Kenyans employed by American companies under H1-B visa and those who have been temporarily transferred by multinationals to work at a branch or unit in the US (holders of L1 visa). It will also apply to remittances sent back home by Kenyan students in the US under F-1 visa and Kenyan migrants who are not verified US citizens or nationals.
Who will be exempted?
The levy will not apply to US citizens and nationals who will be eligible for a refund. The Bill has also exempted money sent via certified remittance transfer provider (RTP) registered with the Internal Revenue Service (IRS) — the equivalent of Kenya Revenue Authority.
This is because RTP is capable of verifying the citizenship of the sender and has entered into a written agreement with the Treasury to verify the status of senders as US citizens or nationals.
Perhaps it is worth noting that US nationals differ from citizens in that they owe allegiance to the US and largely consist of persons born in American Samoa or on Swains Island. This aligns with the Trump administration’s broader plan to bring to a halt illegal migration and a large share of the nearly 12 million undocumented migrants in the US.
Who will withhold the excise tax?
The RTPs have been tasked with withholding the cash equivalent of the tax rate from the amount being transferred.
They are also required to file information returns on the outbound money transfers. The RTP will report information on US citizens and nationals eligible for tax credit, provide aggregate data on taxes withheld and remitted by senders who are not US citizens and nationals as well as disclose transactions where the tax did not apply because they were done verified US senders.
Analysts at global audit and consultancy EY, reckon that “RTPs will need to develop new processes and systems to identify remittance transfers and carry out this reporting requirement”.
How will the tax impact diaspora remittances?
The proposed levy will have an impact on remittances to Kenya if enacted.
The exact impact is, however, not clear as no credible assessment has been done. It is also not clear whether Kenyans in the US will absorb the additional costs or will cut the cash they send back home to help families and dependants buy food and household goods as well as pay medical bills and school fees to cater for the tax.
How important are the remittances from the US to Kenya’s economy?
Kenya last year received $2.63 billion (about Sh339.17 billion) in remittances from the US, an equivalent of two percent of the Sh16.22 trillion gross domestic product.
This is higher than total foreign direct investment flows estimated at $1.504 billion (Sh194.02 billion) in 2023 by the United Nations Conference on Trade and Development.
Trump administration will take about $92.05 million (about Sh11.88 billion) in remittance excise tax from the Kenyan diaspora even if we assume the figure will remain constant.
What impact will the remittance tax have on the cost of wiring money?
The cost of sending money back home averages nine percent of the value. Stakeholders argue the tax will raise the cost and go against the UN Global Compact on Migration Objectives 19 and 20.
Objective 19 focuses on facilitating conducive conditions for migrants and diasporas to contribute to sustainable development in all countries, while Objective 20 calls for the promotion of faster, safer, and cheaper remittance transfers and fostering financial inclusion for migrants.
At what stage is the Bill?
The ‘One Big Beautiful Bill’ was passed by the US House of Representatives Thursday last week. The Bill will now be tabled in the Republican-majority Senate for consideration and final green light before it is enacted into law. The debate and approval in the Senate could happen next month or July.
When will the tax be effected?
The tax will be enforced from January 1, 2026, if it is enacted by the Senate.
