Ethiopia Introduces Nationwide Worker Tax to Offset USAID Funding Loss

Ethiopia’s federal parliament has approved the introduction of a new tax on all workers and businesses in a bold move to address the funding crisis triggered by the suspension of U.S. aid from the United States Agency for International Development (USAID).

The newly proposed legislation will direct the tax revenue into a national Ethiopian Disaster Risk Response Fund, designed to finance critical social and humanitarian programmes that were previously underwritten by USAID—Ethiopia’s largest external development partner until 2023.

Funding Gap After $1.8 Billion Aid Suspension

With a population of over 125 million, Ethiopia had been the biggest recipient of U.S. aid in sub-Saharan Africa, receiving $1.8 billion in the 2023 financial year. The funding supported a wide range of initiatives including:

• Life-saving food distribution

• HIV treatment and medication

• Vaccination campaigns

• Literacy and education programmes

• Job creation projects

• Support for over 1 million refugees living in Ethiopia

Following the suspension, most of these programmes have come to a halt, putting millions at risk. USAID personnel administering the projects have been placed on administrative leave, facing the threat of termination.

Nationwide Tax for Humanitarian Continuity

The new tax, once finalised, will apply to all employees in both the public and private sectors. It will also mandate contributions from corporate entities, including those operating in banking, hospitality, and other key industries. The bill has been forwarded to a parliamentary committee for further deliberation, including setting tax rates and contribution thresholds.

According to lawmakers, the goal is to replace critical funding streams lost due to the aid freeze and to ensure the continuity of essential public services, particularly in regions affected by conflict and poverty.

Rising Humanitarian Needs Amid Conflict

Ethiopia continues to face internal unrest and humanitarian crises in several regions. The northern region of Tigray is still recovering from a brutal two-year conflict, while ongoing instability in Amhara and Oromia has left millions dependent on food aid and healthcare. The halt in aid delivery has exacerbated the suffering of vulnerable populations, with growing fears of food insecurity and collapse of health services.

A Bold Step Toward Sovereign Resilience

Government officials have framed the new tax as a patriotic and necessary measure, reflecting Ethiopia’s determination to chart a self-reliant path in the face of foreign aid volatility. The Disaster Risk Response Fund is intended not only as a stopgap but as a long-term domestic mechanism to finance national emergencies and development.

“This measure is not simply about replacing lost funding,” one senior MP told state media. “It’s about reclaiming the ability to take care of our own, and build a stronger, sovereign Ethiopia.”

A Turning Point in Aid Dependency?

While the legislation signals urgency and pragmatism, some policy experts caution that the tax burden may disproportionately affect low-income earners and small businesses if not properly calibrated.

Nonetheless, Ethiopia’s approach reflects a growing Pan-African shift toward reducing aid dependency, especially amidst rising global donor fatigue. Similar to efforts across Africa to mobilise domestic resources for health, education, and infrastructure, Ethiopia’s tax-driven disaster fund may set a precedent in redefining how African nations respond to crises in the absence of international support.