Why Remittances Should not be Taxed

Abstract

In Part II, we address the reasons for taxation and argue that funds remitted by migrants to their (poorer) country of origin should be given favorable tax treatment by tax authorities in the (affluent) countries in which they work. That is, such migrants should be provided with refundable tax credits or tax exemptions for funds that they remit back to their countries of origin, subject to various controls. Part III presents the moral grounds for exempting remittances. Part IV addresses potential moral objections to our proposal. Part V discusses how the tax benefits should be restricted, and Part VI makes some concluding remarks.Remittances are private financial transfers from migrant workers back to their countries of origin. These are typically intra-household transfers from members of a family who have emigrated to those who have remained behind. The scale of such transfers throughout the world is very large, reaching $338 billion U.S. in 2008 1�several times the size of overseas development assistance (ODA) and larger even than foreign direct investment (FDI). The data on migration and remittances is too poor to warrant very firm conclusions about their effects�actual or potential�on poverty and development in poorer countries. We will however, present reasons that make it plausible to believe that remittances cancontribute to poverty-reduction and promote development in poorer countries. Our main aim, however, is not to engage in detail with empirical debates about the effects of thesetransfers, but to establish moral grounds for favorable tax treatment on remittances on the assumption that they do have positive effects on receiving countries.In Part I, the potential of remittances and implications of the empirical assumption that such transfers do have such beneficial effects are explored. In particular, we spell out theimplications of this assumption for the tax treatment of migrants from poorer countries who work in affluent countries.