In a controversial move, Donald Trump is rallying support for his "One, Big, Beautiful Bill Act," which includes a clause that threatens to impose a 3.5% tax on remittances sent abroad by foreign workers, including H-1B visa holders and green card holders. As the world's leading recipient of remittances, India, which received $119 billion in 2023, may face serious financial implications if the proposal is enacted. The funds sent home by millions of Indian migrants cover crucial household expenses, from medical bills to educational fees.
Should the proposed tax be implemented, experts warn that it might discourage formal remittance methods, leading to an increase in informal cash transfers that bypass banking systems entirely. India's remittances have remained stable at approximately 3% of its GDP since 2000, with forecasts suggesting it may reach $160 billion by 2029. With nearly 18.5 million Indians living abroad, a significant percentage of these migrants are sourcing funds from skilled jobs in the U.S., where 78% of Indian migrants work in viable sectors.
According to Ajay Srivastava from the Global Trade Research Initiative, if remittances decline by 10-15% due to such a tax, India could lose between $12 billion and $18 billion annually, which would exacerbate existing pressures on the country's economy, including a tightening dollar supply and fluctuations in the rupee. States like Kerala, Uttar Pradesh, and Bihar, which rely heavily on these funds for everyday needs, could be hit the hardest.
Dr. Dilip Ratha, a lead economist for migration and remittances at the World Bank, points out that households may prioritize consumption over savings and investment if these inflows decline. Meanwhile, a study by the Center for Global Development predicts that Mexico would suffer the most from this tax, with India, China, Vietnam, and Latin American nations also facing significant cuts.
As the debate continues around the specifics of this levy, including exemptions and implications for non-citizens, the larger question remains: will this proposed tax deter unauthorized immigration? Despite the challenges posed by remittance fees, many migrants, driven by the necessity to support their families, may continue sending funds back home. These developments will be closely watched in the coming weeks as the Senate reviews the bill.
