Possible Tax on Remittances from the U.S. Could Impact Up to 3% of Mexico’s GDP, Warns Finance Ministry

Mexico’s Ministry of Finance and Public Credit (SHCP) has warned that the potential implementation of a 3.5% tax on remittances sent from the United States could have a significant impact on the national economy, equivalent to approximately 3% of Mexico’s Gross Domestic Product (GDP). This was stated by Edgar Amador, head of the SHCP, during his participation in the recent National Meeting of Regional Advisors of BBVA Mexico.

The official emphasized that the impact of this tax would be especially pronounced in certain regions of the country, as remittances represent up to 20% of household income and nearly 10% of state GDP in some states. “The impact will vary greatly depending on the region. While the aggregate effect is around 3% of the national GDP, at the local level it could deliver a much greater blow to communities that are highly dependent on these funds,” Amador explained.

Since 2021, remittances have consecutively surpassed historic levels in Mexico, reaching nearly $63 billion in 2023, according to data from Mexico’s central bank, Banxico. These flows are an essential lifeline for millions of families, particularly in states such as Michoacán, Jalisco, and Guanajuato. The possible imposition of a tax by the U.S. government, recently approved by that country’s House of Representatives, has raised concerns over both its economic repercussions and the risk of exacerbating social vulnerability in regions highly dependent on remittances.

Amador pointed out that such a tax would amount to double taxation for Mexican migrants, who already pay taxes in the United States. He also clarified that, from the Mexican fiscal perspective, the effect would be neutral, as these resources are not taxed in Mexico. However, he warned that the real burden would fall on the recipient families.

The secretary also noted the possibility that much of this cost could indirectly fall on the U.S. economy if Mexican migrants choose to send the same amount of money home, in turn sacrificing their own spending in the United States. “What might happen is that migrants will cut back on their local spending to maintain their remittances, ultimately impacting the U.S. domestic market,” he added.

The discussion about a remittance tax is gaining relevance amid growing political and migration tensions between Mexico and the United States. Analysts believe that, if implemented, Mexico could explore protection mechanisms for remittance recipients, as well as strengthen social programs focused on the most vulnerable regions.

In conclusion, the potential application of a tax on remittances from the United States represents a significant risk for Mexico’s economy, especially for families and communities that rely heavily on these resources. While the measure could have negative consequences on both sides of the border, the outcome and the authorities’ response will be crucial for the well-being of millions of Mexicans.