The policy has already triggered alarm bells across immigrant-heavy economies. India, whose global diaspora is among the most extensive and economically integrated, faces a uniquely acute exposure to this measure.
In 2023-24, India received $118.7 bn in remittances, with the US accounting for 27.7% ($32.9 bn), up from 22.9% in 2016-17. A 5% levy would impose $1.6 bn in added annual costs on Indian remitters. In the short term, we could see tightening dollar supply in India’s domestic market, and likely prompting more frequent RBI interventions to stabilise the rupee.
Remittances are not discretionary luxuries. They are post-tax personal transfers, drawn from income already subject to host-country taxation, and they form a foundational pillar of household consumption, education and healthcare across much of the developing world. For India, they also constitute a vital source of external financing that is both resilient and countercyclical.
Imposition of a secondary tax on these flows not only undermines their economic purpose but also imposes a regressive burden on migrant workers, who typically have limited capacity to absorb additional fiscal costs.
Global financial institutions have consistently warned against taxation of remittances. World Bank has flagged such policies as regressive, distortionary and developmentally counterproductive. Empirical evidence indicates that taxing formal remittances often drives senders toward informal channels – opaque, unregulated conduits that evade both taxation and financial oversight.
IMF estimates that informal remittance flows may be as much as 50% larger than those officially recorded. OECD studies confirm that regulatory friction consistently pushes funds into underground systems, particularly when formal mechanisms are rendered more expensive or administratively burdensome.
Systemic risks posed by such a shift are far from trivial. Informal remittance channels undermine financial transparency, erode regulatory integrity, and elevate exposure to money laundering and illicit financing risks. The result is a policy that generates limited domestic benefit, while producing significant external disruption and macroeconomic insecurity.
Importantly, the US, like any sovereign, retains the right to define its fiscal architecture. In a context of mounting public debt and constrained revenue generation, Washington is increasingly reassessing the tax potential of cross-border financial flows. OBBB reflects a broader trend – the growing willingness of advanced economies to weaponise economic interdependencies as instruments of domestic policy optimisation.
Sovereign states are well within their legal and institutional authority to tax income generated within their jurisdiction or earnings of residents, including migrants. This is a bedrock principle of fiscal sovereignty, rooted in the logic that host countries provide infrastructure, legal protections and social services that justify taxation. From a purely legal standpoint, there is little ambiguity in the right to tax outbound remittances.
Critics will argue – rightly, depending on the profile of the taxpayer – that this bill imposes a substantial penalty on the ability of migrants to sustain transnational family linkages. In the polarised climate that Trump-era politics has institutionalised, the economic rationale behind such policies is often secondary to their symbolic function or morality.
Fairness of the measure, its asymmetrical targeting of migrant communities, and its disregard for the macroeconomic consequences in remittance-dependent economies will raise important questions – though these are questions increasingly ignored in a world where the grammar of economic decency and global reciprocity is fading.
WTO doesn’t directly regulate taxation. But its framework – particularly under General Agreement on Trade in Services (Gats) – was designed to promote fairness and transparency in cross-border service flows. Mode 4, which enables temporary movement of natural persons, has been vital for developing economies. A levy on personal remittances sent by such workers undermines the spirit of this framework.
In effect, it becomes a non-tariff barrier that depresses net earnings and weakens the viability of global labour mobility. But in a Trump-world where, in the immortal words of DDLJ, ‘Bade bade deshon mein aisi chhoti chhoti baatein hoti rehti hain’, it has become a convenient euphemism for real economic hurt.
Taxing remittances signals how governments value global labour contributions and transnational ties. It is, in many ways, a moment when ‘Trump khush hua’ might well echo in Washington – out of fiscal necessity and domestic political optics. India must now pursue protective countermeasures.
One practical option is to negotiate bilateral exemptions for essential remittances, structured similarly to double taxation-avoidance agreements. These would ensure that core remittance flows – those for family support, healthcare and education – are not doubly taxed.
In parallel, India could explore the creation of a dedicated diaspora fund, inviting voluntary participation into a secure, tax-sheltered co-investment vehicle that aligns personal transfers with national priorities in infrastructure, green energy or technological innovation. Such an initiative would recast the diaspora relationship from dependency to financial partnership. The remittance economy now needs deft strategic recalibration.