I guess it all comes down to how one interprets norms regarding discrimination. Paying someone less money for the same work based on their living area fits this dictionary definition of discrimination: "the act, practice, or an instance of discriminating categorically rather than individually" and that coincides with my personal feelings of discrimination.
I guess one can differ in the opinion on whether discrimination as defined is ethical or unethical. In this case the argument hinges on cost of living based on location and the willingness of the workers to work for less or more. However, if the cost of living argument was say in the context of Muslims needing more money because Halal food is harder to find and more expensive, then I think most people would agree that this is discrimination on the basis of religion and probably not legal in most jurisdictions of users here. I guess many people can distinguish these scenarios since discrimination based on race/religion is historically problematic and deserving of special protection whereas generic discrimination isn't necessarily problematic until it is. For me, "Because I can," is not a defense of unfair behavior and less pay for the same work is unfair in my norms.
For me, any determination based on criteria other than the individual's ability to perform the work is suspect. It is just too easy to abuse to maintain power imbalances in the world (obviously people living in ghettos are going to be paid less: it costs less to live in a ghetto, then they cannot earn more to either improve the ghetto or leave). It seems to me if you want to demand people work in the city with the office, you make the part of the contract where they are required to be in the office for some determined hours a sevarable part of the contract with its own remuneration. Then all remote workers get paid the same uniform smaller amount but are never required to be in the office: the requirement of being in the office is relevant to ability to perform work in some sense. If you live outside of the country and the company needs to handle special taxes for that, well either it could be flat out forbidden if HR won't do it or they could reasonably require you to pay for the actual costs associated with foreign reporting of income. Other than that, the employer should stay out of my personal business.