Piece of Whose Pie? The Ethics of Remittance Fees
Arnav Gunwani
Remittance flows have long been a key pillar of income and mobility for households in the global south and less well-off countries in general. According to the Guardian, total remittance flows are worth triple the global aid budget, and if they represented a GDP figure, it would be among the 25 largest economies on the planet.
However, many nations tax remittance flows, adding a fee to any transfers of money by immigrant workers to their families back at home. While these taxes don’t always work - the World Bank has warned that people react by transferring money outside the formal, legal, regulated channels – they do make a statement about a government’s policy priorities. Part of international relations is going beyond studying policies' consequences and instead understanding their motivations. Therefore, especially on a topic of such magnitude, a study of the ethics and political philosophy underlying remittance taxation is well warranted. This article seeks to illustrate the problems with placing taxes on remittances, primarily from a moral standpoint.
One of the clearest and most intuitive objections to taxing remittances is the issue of double taxation. Immigrants, like any citizens, have to pay taxes on their income. Yet remittance taxes force them to pay another, separate fee when they transfer part of that same income abroad, effectively taxing that portion of their income twice. Why so? They aren’t purchasing anything with that money, not even converting it to any other form of financial asset. Moreover, the government isn’t the entity responsible for channeling remittance money: banks take up that role. There doesn’t seem to be any justifiable reason to charge immigrant workers for simply moving their money between accounts.
However, there are far more serious problems with remittance taxes: problems tied to deeper concepts like identity and heritage. As previously mentioned, sending remittances to family abroad is different from making purchases or investing it. All that happens is a sharing of money between one member of a family and the rest. Considering this detail, remittance fees function as an added liability imposed simply for having family members in other countries. This kind of ‘immigrant tax’ comes across as a barrier to reconciling one’s personal identity as an immigrant with the broader national identity. If you have to make an extra contribution to the government in order to support your family, just because they live elsewhere, can you really ever feel accepted as part of a nation’s social fabric?
Another argument against remittance fees places more emphasis on the importance of remittance flows to international development. Considering the sheer magnitude of remittances received by households in some countries, there is no questioning that more developed countries’ policies on this type of money transfer can have significant effects on entire nations. Raising the costs of remittance transfers (by taxing them) effectively discourages development assistance to less well-off communities, further entrenching vast inequalities in living conditions. This is especially problematic at a time when the global south is losing human capital to the global north in a so-called “brain drain”, especially in critical areas like healthcare. This dynamic combines with remittance taxation, like two pieces of the same puzzle, to create a neocolonialist power balance whereby high-expertise professionals migrate to well-off countries in the global north but the monetary contributions they generate have to partly stay within those nations. When the best trained people work in the same countries, and those governments can take cuts out of the money that goes back to their home countries, the monetary gains of social mobility become concentrated in the same nations. Once again, inequalities across many different fields and/or parameters worsen as a result.
Overall, remittance taxes have clear ethical issues. However, this isn’t an area where one can just dismissively hope for reform or modification that fixes everything. The power dynamics and moral values underlying remittance taxes seem to raise questions about whether these policies are inherently problematic in the very spirit of their existence. Of course, any positive change is welcome, and improvement comes in stages. But the issues at play here are very fundamental, and they call for a re-evaluation of how national identity and global progress should play into policymaking. Only through that conversation can we consider questions like this one and many more.