The Impact of Taxation Policies on Remittances to Senegal

People who want to send money to Senegal now face a new obstacle: tax on remittance. Development economists and international research organisations give remittances and household transfers a lot of consideration when discussing how they contribute to reducing poverty, economic expansion, and development. 

Since 2000, the size and scope of remittances have increased eight times faster than the global economy, demonstrating how migration and international money transfers have evolved into a blatant expression of globalisation.

With an annual receipt of over $300 billion, remittances made by migrants have grown into a significant source of funding for developing nations. While most governments have supported initiatives to increase these hard-currency flows via official channels, some are considering taxing remittances as an additional revenue stream. Some receiving nations already impose taxes on remittances, frequently in secret.

Why Is Taxing Remittances Not Good For The Country's Growth? 

More than three times the amount of official development aid flows, migrant remittances to developing countries in recent years totalled $440 billion. The main source of foreign exchange in many nations is remittances. They outpace foreign direct investment in India and Mexico, Suez Canal revenues in Egypt, and international reserves in Pakistan. They also outpace foreign direct investment in India and Mexico.

Recently, a number of wealthy nations that take in a lot of migrants have started to think about taxing remittances sent abroad, partly to generate income and partly to deter undocumented immigrants. 

Taxing outgoing remittance flows is not a good idea for the following reasons:

• Taxing remittances amount to double taxation for migrants who pay taxes because the income of migrants has already, in theory, been taxed in the host country. Remittances are frequently given to immigrant families who are struggling financially, so the tax would ultimately fall on them, making it highly regressive.
• A tax on remittances will increase the cost of remittances, which is in direct conflict with the Sustainable Development Goal of lowering remittance costs and promoting financial inclusion, as well as the G20 commitments.
• A remittance tax will impact these latter factors to the extent that small-value transfers are made through remittance channels for trade, tourism, investment, and charitable purposes.
• By reducing the amount of business received by remittance service providers, a tax on remittances would result in lower tax obligations. 
• Remittance taxes could make it more difficult for expat workers and business owners to stay in their home countries. Read here to learn the top 5 tips for cutting the cost of family remittances.

How Taxation Policies Affect Remittances To Senegal? 

Taxation policies can significantly affect remittances to Senegal, both in terms of the volume of remittances sent and the methods used to send them. The following are some ways that tax laws may impact money sent to Senegal:

Taxes On Remittance

Senegal levies no taxes on remittances coming into or leaving the country. However, some nations tax remittances, which can cut down on the amount of money migrants send to their Senegalese relatives. Since remittances are a major source of income for many families, this could significantly impact Senegal's economy.

Exchange-Rate Policies

The country's exchange rate policies may also impact remittances. For instance, if the exchange rate is reasonable, migrants may send more money to their Senegalese relatives. In contrast, the amount of money sent might be scaled back if the exchange rate is unfavourable.

Transaction Fees

The sum of money sent via remittances may also be impacted by transaction fees. Due to high transaction costs, migrants may send money through more ad hoc methods instead of banks and money transfer companies, such as hand-carried cash or unofficial money transfer agents. This might have effects on the formal financial system and the overall economy.

Rewards For Formal Channels

Incentives from the government can be used to entice migrants to send money through authorised channels. One way to lower the cost of making a money transfer to Senegal through official channels is to offer tax breaks or other incentives to money transfer companies. As a result, the remittance market may be more transparent and accountable by using formal channels more frequently while using informal channels less frequently.

Statistics on How Tax Policies Affect Remittances to Senegal

The impact of taxation policies on remittances to Senegal cannot, sadly, be quantified by available data or statistics. The following general data on remittances and their importance to the Senegalese economy are provided nonetheless:

• A projected $2.6 billion in remittances, or 9% of Senegal's Gross Domestic Product (GDP), arrived in the West African nation in 2020.
• Senegal continues to be expensive to send money to; in the first quarter of 2021, the average cost was 7.2%, higher than the 6.5% average cost worldwide. 
• A 24.5% penetration rate was achieved in Senegal as of 2020, with 3.9 million registered mobile money accounts. 
• Senegal has carried out a number of programmes to encourage financial inclusion and the use of official channels for remittances, including introducing a national financial inclusion strategy and creating a national agency to promote microfinance. 

The data mentioned above emphasise the significance of remittances to the Senegalese economy and the potential advantages of encouraging financial inclusion and using formal channels for remittances, even though there are no specific statistics on the effect of taxation policies on remittances to Senegal. Governments can use policies and incentives to lower the cost of sending remittances and encourage the use of formal channels. This can benefit the formal financial sector and the overall economy.

Taxation policies can significantly impact remittances to Senegal, both in terms of the number of remittances sent and the channels through which they are sent. Governments can use tax policies and other incentives to encourage formal channels and reduce the cost of sending remittances, which can have positive implications for the formal financial sector and the broader economy.

Bottom Line 

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