AfDB wants to tax the African diaspora: a good idea or not?
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Remittances (money sent by the diaspora or migrants to their home countries) play a crucial role in many African economies. They serve as a stable and often growing source of foreign income, sometimes surpassing foreign direct investment and official development assistance. For countries like Nigeria, Egypt, Ghana, Kenya, and Senegal, remittances contribute significantly to national GDP.
At the household level, remittances improve living standards by helping families cover basic needs such as food, education, healthcare, and housing. They also provide a form of social insurance during economic downturns or crises. In rural areas especially, these funds can reduce poverty and promote financial inclusion by encouraging the use of banking and mobile money services.
Beyond household support, remittances can have broader developmental impacts. They can boost local economies by increasing consumption, supporting small businesses, and fostering entrepreneurship. However, their potential is often underutilized due to high transfer costs, lack of financial literacy, and limited investment channels.
Given the significant role remittances play in African economies, is it advisable for governments to impose taxes on diaspora contributions, or would such a policy risk undermining their developmental impact
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BANENGAI KOYAMA Torcia Chanelle,Central African Republic,MFGD Would you clarify on the taxes that these governments are imposing on diaspora contributions? I see it difficult given the capacity of tax administration systems in African countries. See my thinking below:
I agree with you on the significant roles of remittances - but due to the informality of the channels that the diaspora use in remitting funds to left-behind households, i believe it would be difficult for governments to succeed at this. In addition, i believe the more they attempt to tax these formal channels, the more the informal channels will present themselves - which would lead to reduced formal tracking of remittances by government albeit people still increasing the volumes. At the macro-level, this problem in the external sector will present spill-over problems to the real, financial, and public sectors. In Malawi for example, this presents data accuracy issues by central banks (research loses validation), presents an informal black market for forex (people create forex markets on social media), and limits forex availability (forex does not go through banks) (this ofcourse will have many other consequences for import dependent countries).
