The shadow of a 5% tax: Bangladesh's remittance dilemma

The latest proposal by US President Donald Trump that foreign remittances sent from the US be taxed at 5 percent is a cause of major concern for Bangladesh. With Bangladesh as one of the leading recipients of international remittances, the country risks notable economic repercussions if ever such a proposal is implemented. During the first nine months of the 2024–25 financial year, remittances from the USA amounted to approximately $3.94 billion and accounted for more than 18 percent of the country's total remittance inflows. The amount highlights the significance of the Bangladeshi diaspora in the United States and their vital role in the national economy.

Bangladesh has experienced positive growth in remittance inflows in recent months because of a more favourable exchange rate and narrowing disparities between formal and informal markets. Remittances from the United States have now surpassed those from many Gulf countries, reflecting a shifting trend in the sources of financial support. Bangladesh received an all-time high of $3.29 billion in remittances in March 2025, a testament to how crucial this revenue source is for most households, especially those in rural areas.

Such a tax would directly eat into the amount that families receive back home, discouraging many from sending remittances via official banking channels. Instead, this might lead to informal transfer channels such as hundi to rise, which are unregulated and more difficult to track. The potential return to informal remittance channels undermines the effort placed in formalising systems and rendering financial flows transparent. This will undermine a significant support of Bangladesh's economy at a point when external finances are still under stress.

To offset the impact of such a policy, Bangladesh needs to be actively engaging with the US policymakers, making a clear case against the tax and explaining its far-reaching consequences for families in developing countries. Concurrent efforts have to be undertaken to make formal remittance channels more attractive. This involves improving access to banking services, making digital interfaces simpler, and offering quicker and cheaper transactions.

Additionally, there is a need for public awareness campaigns to educate remitters and recipients about the benefits and safety of formal channels. Greater surveillance of informal channels will also prove valuable in keeping them in check. Last but not least, a shift towards an operational market-determined exchange rate will make formal channels more competitive and in vogue, closing the gap between official and unofficial rates and pushing remitters towards staying within the formal system.

The writer is the executive director of the South Asian Network on Economic Modelling (SANEM) and a professor of economics at Dhaka University