From the United States to Saudi Arabia, new taxes are threatening to derail diaspora remittances to Kenya in 2026, unsettling an increasingly important source of foreign exchange.
The United States, Kenya’s top source of remittances, has introduced a one percent excise tax on money sent abroad, effectively raising the cost of sending funds back home from January 1.
The US accounts for more than half of Kenya’s diaspora remittances, with inflows of Sh33.8 billion in October, of the total transfers of Sh56.6 billion.
The new tax could reduce both the size and frequency of remittances flowing back to Kenya.
Analysts have projected that even with certain exemptions, the tax could reduce remittances from the US by at least 1.6 percent, triggering knock-on effects such as lower household incomes and increased foreign exchange pressures.
Remittance costs -- driven by fees and currency conversion-- have long been a global policy concern due to their impact on families.
The levy on remittances could skim billions from migrant workers, many of whom already pay taxes in America.
“The proposed tax would be likely to reduce remittances sent through formal channels in two ways: by reducing the amount sent, as a portion is diverted towards the tax, and by discouraging remittances altogether,” said a recent study by the Centre for Global Development.
“Where the effects of the tax are significant relative to gross national income, countries could experience lower household incomes, weaker consumer demand, and increased exchange rate pressures.”
The US remains the top source of remittances worldwide, with its share rising from 23.4 percent in 2020–21 to nearly 28 percent in 2023–24, driven by a strong post-pandemic job recovery and a 6.3 percent rise in foreign-born workers in 2022.
Remittances in Kenya are largely used for household consumption, savings and investment in assets such as housing and small businesses.
A drop in inflows could shrink domestic savings and reduce investment in both financial and physical assets.
Beyond the US, several other countries have introduced tax changes this year that could affect remittances from Kenyans living abroad, generally weighing on inflows into the country.
Saudi Arabia, the leading source of Kenya’s remittances in the Middle East, has introduced a value-added tax on services, requiring money transfer platforms to charge and remit tax on transaction costs, raising the cost of sending money.
Monthly remittances from Saudi Arabia average about Sh2.2 billion.
Other Gulf countries, including the United Arab Emirates and Qatar, could adopt similar requirements under the framework of the Gulf Cooperation Council, the region’s economic bloc.
In Europe, the United Kingdom has also changed the taxation of foreign income for non-citizens residing in the country, introducing mandatory taxation of income earned by residents regardless of whether it is remitted to the UK.
This means Kenyans living in the UK who earn income from other countries, which was previously exempt from tax, could have less disposable income to send back home.
The UK is among Kenya’s top remittance sources, with about Sh4 million sent every month to support families and projects in the country.
Germany and the Netherlands, also among Europe’s top remittance sources to Kenya, have introduced income tax changes that could further reduce disposable incomes for Kenyans living there.
Despite rising tax pressures, some experts believe Kenya’s diaspora remittances will remain resilient, as much of the money sent home is earmarked for specific obligations and projects.
“When immigrants leave the country to seek opportunities abroad, they know why they are going, because they have obligations they leave behind,” said Vincent Aberi, East Africa growth manager for the US and Canada at remittance firm LemFi.
“They still have to send money back home. So, they work very hard, educate themselves and make sacrifices to ensure their families back here are comfortable. That is why remittances continue to grow every year.”
Remittances are currently Kenya’s largest source of foreign exchange, generating more dollars than any of the country’s major exports, including coffee, tea, horticulture and tourism.
In the 12 months to November, Kenyans abroad sent home a record Sh650 billion ($5 billion), up Sh22.6 billion from Sh628 billion ($4.9 billion) in the same period last year.
