The idea of taxing cross-border remittances has been raised in some countries recently, especially in the Middle East. Although this is not a South African conversation — not yet, anyway — it has been highlighted elsewhere as a way for governments to generate additional revenue.
However, According to a recent report by World Bank, taxing remittances is a bad idea. I agree.
Proposed taxes on remittances are being driven by low oil prices in the Middle East. Up to 93% of the population in certain Gulf countries are migrants who supply the labour force for all services. Due to the downturn in energy prices, these economies are now looking at other ways to generate revenues — and one option is implementing a tax on remittances.
But such taxes impact the most hard-working, enterprising and entrepreneurial individuals who make the ultimate sacrifice of leaving behind their loved ones in order to search for a better future elsewhere.
According to United Nations migration statistics, more than 254m people (3,4% of the world’s population) live outside the country of their birth, with the market size for remittances estimated at US$610bn/year.
Hello Paisa targets migrants living and working in South Africa and has a customer base of 350 000 individuals who rely on the remittance solution to send money home to their families simply, legally and at a low cost. By launching a solution that complies with regulations, we have been able to bring these individuals into the formal and reportable environment.
Before remittance solutions such as Hello Paisa were available, many migrants made use of illegal and informal channels to send money home. These illegal money transfer solutions were fraught with problems, including delays and lack of pricing transparency, while also being very expensive. Hello Paisa has moved billions of rands from the illegal/black market and into the regulated space.
Defeats the benefits
Taxation on remittances is counterproductive and will force these individuals to go back to these illegal channels as this tax will be passed onto them. This will ruin the hard work that has been done by Hello Paisa and other operators to bring remittances into the legal, regulated space.
Although this is currently an international conversation, this type of taxation defeats the benefits this solution offers the migrant market.
- Ahmed Cassim is MD of Hello Paisa