Philippines resilient amid potential US remittance tax

The Philippines may face headwinds from a proposed U.S. remittance tax, but analysts believe the country’s strong fundamentals and adaptable remittance channels will help cushion the impact on its economy.

According to a May 21 report by UK-based think tank Capital Economics, the proposed 5% tax on remittances sent by non-U.S. nationals—outlined in a draft bill by the U.S. House Ways and Means Committee—could affect money transfers to several emerging markets, including the Philippines. However, the group also pointed out that currency flexibility and remittance innovation could serve as buffers.

“The Philippines stands out among large emerging markets for its dependence on U.S. remittances,” said Capital Economics Chief EM Economist William Jackson. Remittances from the U.S. account for about 3% of the country’s GDP, making it one of the top sources of foreign exchange and household income.

Still, the think tank acknowledged that any slowdown in formal inflows may be offset by a combination of factors. These include the possibility that remitters will increase the value of transfers to absorb the tax, shift to lower-cost alternatives such as digital platforms and cryptocurrencies, or use informal networks that bypass formal taxation.

Moreover, Capital Economics emphasized that the Philippines' floating exchange rate could help stabilize domestic demand. “Depreciation of the peso would increase the local currency value of remittances, cushioning their purchasing power at home,” the report noted.

The think tank added that a weaker peso could also support the country's trade competitiveness, potentially offsetting balance of payments pressures from reduced dollar inflows.

Despite the remittance-related risks, Capital Economics still expects the Philippines to post solid growth. While it revised its 2025 GDP forecast slightly downward to 5.3% from 6%, the Philippines remains one of the few emerging markets projected to outpace its 2024 growth of 5.7%.

Earlier, the firm’s Asia economist Gareth Leather said the country’s economic outlook remains relatively strong, supported by robust domestic consumption, improving investment activity, and government spending.

As policymakers monitor developments in the U.S. Congress, industry stakeholders believe the Philippines’ remittance ecosystem—built on decades of resilience and adaptability—will continue to be a key pillar of economic stability.