Ethiopia implements taxation overhaul to address USAID funding gap

Ethiopia’s parliament has enacted a sweeping tax reform targeting both private and public sector employees to fill the financial void created by USAID’s recent funding suspension.

The newly established Ethiopian Disaster Risk Response Fund will channel these tax revenues toward critical projects previously sustained by USAID, which had been Ethiopia’s foremost development and humanitarian partner. The parliamentary committee is currently deliberating on contribution percentages across various economic sectors, including mandatory contributions from banking and hospitality industries.

With its population exceeding 125 million, Ethiopia had emerged as sub-Saharan Africa’s largest recipient of U.S. aid, securing $1.8 billion during the 2023 fiscal year. These funds supported essential services including food distribution, HIV medications, vaccination programs, literacy initiatives, and employment generation projects.

The nation faces escalating humanitarian challenges across multiple regions. Tigray continues its recovery from a devastating two-year conflict, while Amhara and Oromia regions experience persistent unrest, collectively leaving millions dependent on external aid for basic necessities like food and healthcare.

The funding interruption has resulted in the suspension of numerous life-saving programs. USAID personnel who previously administered these initiatives have been placed on administrative leave and instructed to cease operations, with many facing potential termination.

The government’s rapid implementation of alternative funding mechanisms underscores the severity of the situation and the critical importance of maintaining humanitarian support systems during this transition period. Officials emphasize that the tax measures represent a necessary response to ensure continuity of essential services for vulnerable populations across the nation.