Mexico remittances dip 5% in May as US mulls tax

By Sarah Morland, Noe Torres and Emily Green

MEXICO CITY, July 1 (Reuters) - Remittances sent to Mexico dropped 4.6% in May compared to a year earlier, according to central bank data published on Tuesday, as the United States prepares to implement a tax on the money sent by workers to their families back home.

The figure for May hit some $5.36 billion, the accumulation of some 13.9 million transactions averaging $385 each. While the size of each transaction edged up compared to the same month last year, the number of transactions dropped some 5.7%.

Mexico, the world's second-largest recipient of remittances after India, receives remittances chiefly from workers in the U.S., where the Senate recently softened plans to tax these transfers.

The proposed budget making its way through U.S. Congress now calls for a 1% tax on remittances when they are made in cash.

Earlier drafts of the legislation called for taxing all remittances 3.5%, a plan Mexican officials said violated a tax treaty between the two countries because, they said, it amounted to double taxation, as the remittances are already subject to local taxes in the U.S.

While Mexican officials seemed relieved the bill had been amended, President Claudia Sheinbaum said that if signed into law, her government would announce a program to reimburse the 1% lost to the U.S. tax.

"Look at the love our migrant brothers and sisters have for their families and for Mexico," Sheinbaum said at her morning press conference on Tuesday. "No matter what the circumstances, they always support their families."

Manuel Orozco, director of the Migration, Remittances, and Development Program at the Inter-American Dialogue, said approximately 40% of remittances to Mexico are sent in cash, though the number of electronic transfers is likely to increase if the bill passes.

In April, Mexico central bank logged the steepest drop in remittances in nearly 13 years.

The May remittances data marked the second consecutive year-on-year decline and the third so far this year, according to central bank data.

The decline in remittances sent to Mexico is an outlier in the region.

El Salvador, Honduras and Guatemala have all registered sharp increases in remittances so far this year compared to the same period in 2024, according to official data.

Orozco said declining Mexican remittances reflect lower overall Mexican migration to the U.S. in recent years, plus Mexican immigrants there have maximized their capacity to send money.

Jesus Cervantes, director of economic statistics at the Center for Latin American Monetary Studies, said there are a higher percentage of undocumented Central Americans in the U.S. than Mexicans. As deportations ramp up, Central American migrants may be more motivated to send money now instead of waiting, he added.

"That is a qualitative factor" contributing to the different trends in remittances, he said.