The US House of Representatives recently passed a tax bill including a controversial Section 899 provision that proposes increased taxes on remittances sent from the US and additional taxes on US investments held by non-US citizens. This legislation, if enacted, is expected to take effect from 2026 and has sparked global concern, particularly for emerging economies such as Kenya and other East African countries that rely heavily on remittances from the US.
Impact on Remittances and Money Transfer Companies
Section 899 would impose a 3.5% tax on all money transfers sent by non-US citizens from the US, with no minimum transaction amount. The tax would be collected by remittance service providers, banks, and money transfer apps, and remitted to the US Treasury. This new tax is likely to increase the cost of sending money home, which is already expensive—averaging just over 6% from the US according to the World Bank.
Smaller and newer money transfer companies such as TorFX, Wise, OFX, and Currencies Direct, which have gained market share from established firms like Western Union, MoneyGram, and PayPal, will face increased operational burdens. They would be required to verify sender citizenship, implement new fee structures, and comply with additional reporting requirements. These added responsibilities could raise costs and reduce competition, potentially pushing up transfer fees further.
MoneyGram’s CEO Anthony Soohoo described the proposed tax as “unfortunate,” noting that remittances are often a necessity for families rather than a luxury. For many Kenyan and East African households relying on funds sent by relatives working in the US, higher transfer costs could reduce the money available for essentials such as education, healthcare, and business investment.
Broader Economic and Investment Implications
The tax bill also targets foreign investment in US assets. Section 899 authorizes retaliatory taxes ranging from 5% to 20% on income such as dividends, interest, royalties, and rents earned by non-US persons from US sources. This is intended as a response to what the US government considers “unfair foreign taxes” imposed by other countries.
For Kenyan and East African investors or diaspora members holding US property or other assets, this could mean higher tax burdens, potentially deterring investment in the US market. The legislation risks triggering capital outflows as investors seek more favorable jurisdictions, which could weaken the US dollar and shift global investment patterns.
Risks of Retaliation and Informal Channels
The proposed tax may provoke retaliatory measures from other countries, escalating into a cycle of cross-border tax increases. There is also concern that higher costs and stricter regulations may push some money transfers into unofficial or informal channels, which are less secure and harder to regulate.
Global and Regional Significance
Remittances from the US are a vital source of income for many developing countries. For example, US-based remittances constitute around 3% of the Philippines’ GDP and totalled approximately $160.9 billion to Latin America in 2024. While Kenya’s remittance figures are smaller, they remain critical for many families and small businesses.
The proposed US tax changes could therefore have significant ripple effects on the economies of Kenya and East Africa by reducing the net funds received from abroad and complicating investment flows.
Outlook and Next Steps
The bill now moves to the US Senate, where its provisions may be amended or blocked. International observers and financial institutions are closely monitoring developments, as the final outcome will have important consequences for global remittance flows and international investment.
For Kenyan and East African stakeholders, understanding the potential impact of Section 899 is crucial for planning future financial and investment decisions, especially for diaspora communities and businesses reliant on cross-border capital.
This analysis aims to inform Kenyan and East African audiences about the potential effects of the proposed US tax legislation on remittances and investments, highlighting the need for vigilance and adaptive strategies in the face of evolving international tax policies.
