Nigeria: Proposed US Remittance Tax May Curtail Nigeria’s FX Inflows and Spur Informal Transfers — CSL

CSL Stockbrokers Limited has warned that a proposed United States (US) legislation imposing a 5% tax on outbound remittances could significantly impact Nigeria’s foreign exchange (FX) inflows and weaken macroeconomic stability, should the measure be enacted.

In a recent commentary, the investment firm noted that the bill, introduced by US lawmakers to bolster fiscal revenues, would require senders—primarily US residents—to pay the 5% levy at the point of transaction. While verified US citizens may be eligible to claim the remitted amount as a tax credit, the legislation is expected to increase the cost of cross-border money transfers for most senders.

“If passed, this proposal could directly affect the volume of remittances to countries like Nigeria that are heavily reliant on such flows to support their current account balance and FX reserves,” CSL said.

According to the firm, Nigeria remains particularly vulnerable to such external policy shifts. In 2024, diaspora remittances reached a five-year high of $23.8 billion, representing 12.7% of GDP and contributing to 17% of current account growth. These inflows have served as a financial buffer, easing external financing pressures, bolstering naira stability, and sustaining household incomes in a volatile economic climate.

“Remittances have been instrumental in improving disposable income and supporting consumption amid ongoing macroeconomic headwinds,” CSL emphasized.

The US is one of Nigeria’s largest remittance corridors, and a cost hike in transferring funds could lead to a dip in overall inflows, with far-reaching implications for households that rely on these funds for essential needs such as food, education, healthcare, and housing.

CSL’s baseline outlook projects that Nigeria’s remittance inflows could rise by 6.2% year-on-year, reaching $25.3 billion or 13.4% of GDP in 2025. However, the proposed tax measure could dampen this momentum, causing inflows to fall short of expectations.

In addition to the financial burden, CSL warned of potential regulatory side effects, noting that the measure may inadvertently drive remittance activity into informal or black-market channels, especially among migrants who are ineligible for tax credits.

“Such a shift could weaken financial transparency, hinder regulatory oversight, and reduce the government’s ability to harness remittances for formal development purposes,” the note stated.

The investment firm stressed that any move by the US to tax outbound remittances should be monitored closely by Nigerian authorities, as it could undermine years of effort aimed at promoting formal remittance systems, enhancing financial inclusion, and improving regulatory compliance within the remittance ecosystem.

As the debate continues in the US Congress, analysts advise proactive engagement by policymakers in countries like Nigeria, advocating for measures that safeguard legitimate cross-border financial flows while encouraging transparency and collaboration within the global remittance value chain.