Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Taxes threaten to derail remittances from Kenya’s top sources in New Year
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.
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 1 percent excise tax on money sent abroad, effectively raising the cost of sending funds back home from January 1.
The US accounts for nearly half of Kenya’s diaspora remittances, with about Sh28 billion ($220 million) sent from the country every month. The new tax could reduce both the value 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.
“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.”
Beyond the US, several other countries have this year introduced tax changes that could affect remittances from Kenyans living abroad.
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.
Remittances from the Gulf nation have already declined since the law began to be implemented in April, falling from Sh4.2 billion in January to Sh2.2 billion by September.
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 billion 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.
