US remittance tax could be a Tk 5,000cr hit for migrants: CPD

A proposed 3.5 percent tax on outbound remittance can raise costs incurred by Bangladeshi migrants sending money back home from the US to nearly Tk 5,000 crore annually, said a local think tank yesterday.

Currently, the average cost of sending remittances from the US to Bangladesh stands at 4.4 percent, according to World Bank data.

"If the US imposes a 3.5 percent tax on outbound remittance, the total cost of sending money could rise to 7.9 percent for Bangladesh or Tk 4,820 crore ($395 million) annually," said the Centre for Policy Dialogue (CPD).

"This will no doubt have adverse implications for remitters sending money to Bangladesh from the US," said Fahmida Khatun, executive director of the CPD.

She was unveiling a study while presenting the CPD's quarterly economic review at its office in Dhaka on Monday.

To mitigate the impact, the local think tank has urged the government to engage in diplomatic efforts, taking along other remittance recipient countries.

"The goal would be to push for a minimum threshold of tax-free remittance outflows from the US, particularly to safeguard the interests of small remitters," said the CPD.

Last week, the US House Budget Committee proposed a 3.5 percent tax on remittance transfers by anyone who is not an American citizen or national.

The CPD said a rise in the inflow of remittances has contributed to maintaining exchange rate stability, with an additional $5.42 billion received during the first 10 months of fiscal year 2024-25.

"There remains untapped potential. While approximately 41 lakh people have gone abroad for employment over the past four years, remittance inflows have not increased proportionately," it said.

It also warned that the authorities must prevent the revival of illegal hundi and hawala networks that have been dismantled.

"Tackling informal remittance channels requires action on both the demand side—targeting operators abroad—and the supply side, such as curbing illicit financial outflows through money laundering," said the CPD.

In FY26, the government is expected to spend around Tk 9,880 crore on remittance incentives. With the foreign exchange rate now being market-driven, it is time to reconsider the current incentive structure, it said.

"Gradually reducing the incentive from 2.5 percent to 1 percent could save the government approximately Tk 6,000 crore in FY26," it said.

At the event, the CPD also warned about low revenue collection by the revenue administration.

"The interim government needs to intensify revenue collection growth by at least 12 times that of the current pace to meet the revenue target by June of the current fiscal year," it said.

In the first half of the current fiscal year (FY25), total revenue collection grew just 5.3 percent compared to that in the same period of the previous year, according to finance ministry data.

"To meet the full-year target, revenue will now have to increase by an improbable 64.6 percent over the remainder of the fiscal year," said the CPD.

In FY25, the government set its annual revenue collection target at Tk 5.41 lakh crore, and it was revised to Tk 5.18 lakh crore.

"The annual target to be achieved…is a highly unlikely prospect," said Fahmida Khatun.

The CPD projected that the revenue shortfall could reach approximately Tk 105,000 crore at the end of FY25.

According to the National Board of Revenue (NBR) data, tax collected by the NBR increased by a meagre 2.8 percent during the July-March period, whereas the corresponding figure of FY24 was 10.7 percent.

The growth achieved can be attributed primarily to the enhanced collection of income tax, she said.

"The slowdown in ADP implementation, as well as the downturn in overall economic activity, have perhaps contributed to the poor collection of VAT and supplementary duty at the local level despite the high level of inflation and increased VAT and SD rates for nearly 90 items," she said.

Given this, whether the upcoming International Monetary Fund (IMF) conditionalities concerning revenue can be met remains a question, said Fahmida.

The debacle concerning the abolishment of the NBR has thankfully been settled for the time being, thanks to a press release issued by the finance ministry, she said.

However, there is no doubt that the repetition of such an instance will negatively impact the economy, particularly in the case of revenue mobilisation, she warned.

A proposed 3.5 percent tax on outbound remittance can raise costs incurred by Bangladeshi migrants sending money back home from the US to nearly Tk 5,000 crore annually, said a local think tank yesterday.

Currently, the average cost of sending remittances from the US to Bangladesh stands at 4.4 percent, according to World Bank data.

"If the US imposes a 3.5 percent tax on outbound remittance, the total cost of sending money could rise to 7.9 percent for Bangladesh or Tk 4,820 crore (about $395 million) annually," said the Centre for Policy Dialogue (CPD).

"This will no doubt have adverse implications for remitters sending money to Bangladesh from the US," said Fahmida Khatun, executive director of the CPD.

She was unveiling a study while presenting the CPD's quarterly economic review at its office in Dhaka on Monday.

To mitigate the impact, the local think tank has urged the government to engage in diplomatic efforts, taking along other remittance recipient countries.

"The goal would be to push for a minimum threshold of tax-free remittance outflows from the US, particularly to safeguard the interests of small remitters," said the CPD.

Last week, the US House Budget Committee proposed a 3.5 percent tax on remittance transfers by anyone who is not an American citizen or national.

The CPD said a rise in the inflow of remittances has contributed to maintaining exchange rate stability, with an additional $5.42 billion received during the first 10 months of fiscal year 2024-25.

"There remains untapped potential. While approximately 41 lakh people have gone abroad for employment over the past four years, remittance inflows have not increased proportionately," it said.

It also warned that the authorities must prevent the revival of illegal hundi and hawala networks that have been dismantled.

"Tackling informal remittance channels requires action on both the demand side—targeting operators abroad—and the supply side, such as curbing illicit financial outflows through money laundering," said the CPD.

In FY26, the government is expected to spend around Tk 9,880 crore on remittance incentives. With the foreign exchange rate now being market-driven, it is time to reconsider the current incentive structure, it said.

"Gradually reducing the incentive from 2.5 percent to 1 percent could save the government approximately Tk 6,000 crore in FY26," it said.

At the event, the CPD also warned about low revenue collection by the revenue administration.

"The interim government needs to intensify revenue collection growth by at least 12 times that of the current pace to meet the revenue target by June of the current fiscal year," it said.

In the first half of the current fiscal year (FY25), total revenue collection grew just 5.3 percent compared to that in the same period of the previous year, according to finance ministry data.

"To meet the full-year target, revenue will now have to increase by an improbable 64.6 percent over the remainder of the fiscal year," said the CPD.

In FY25, the government set its annual revenue collection target at Tk 5.41 lakh crore, and it was revised to Tk 5.18 lakh crore.

"The annual target to be achieved…is a highly unlikely prospect," said Fahmida Khatun.

The CPD projected that the revenue shortfall could reach approximately Tk 105,000 crore at the end of FY25.

According to the National Board of Revenue (NBR) data, tax collected by the NBR increased by a meagre 2.8 percent during the July-March period, whereas the corresponding figure of FY24 was 10.7 percent.

The growth achieved can be attributed primarily to the enhanced collection of income tax, she said.

"The slowdown in ADP implementation, as well as the downturn in overall economic activity, have perhaps contributed to the poor collection of VAT and supplementary duty at the local level despite the high level of inflation and increased VAT and SD rates for nearly 90 items," she said.

Given this, whether the upcoming International Monetary Fund (IMF) conditionalities concerning revenue can be met remains a question, said Fahmida.

The debacle concerning the abolishment of the NBR has thankfully been settled for the time being, thanks to a press release issued by the finance ministry, she said.

However, there is no doubt that the repetition of such an instance will negatively impact the economy, particularly in the case of revenue mobilisation, she warned.