Another controversial new bill from President Donald J. Trump, dubbed “The One Big Beautiful Bill,” is stirring debate. Despite the administration’s assertions that it will offer a “historic opportunity to deliver economic freedom for working families, farmers, and small businesses,” a key provision imposes a five percent tax on remittance transfers by non-citizens, directly impacting recipient nations.
For millions of immigrants in the U.S.—including members of the sizable Ethiopian diaspora—the measure could mean a heavier financial burden and an even more entrenched underground money transfer system.
The legislation applies to remittances sent by foreign workers on H-1B and L-1 visas, international students on F-1 visas, permanent residents (green card holders), and other non-citizens. US citizens and nationals would be exempt. The law could take effect as soon as July 4, 2025.
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Under the plan, remittance services such as Western Union and MoneyGram, along with banks, would be required to deduct the tax at the point of transfer. No minimum threshold would be exempt—meaning even modest amounts sent home to support family would be subject to the levy. Funds collected would be transferred quarterly to the US Treasury.
The global impact could be staggering. In 2023, Indian nationals in the United States sent home an estimated USD 23 billion. A five percent leavy on those transfers would siphon off more than USD 1.1 billion annualy—funds typically used for essentials like education, healthcare, and food.
For Ethiopian immigrants, however, the implications may be more nuanced. Many in the diaspora already rely on informal systems to transfer funds back home, a practice that may shield them from the policy’s reach—at least initially.
“I don’t think the draft policy will affect Ethiopians that much,” said Teklemichael Abebe, a Canada-based immigration lawyer. “Most use informal systems such as personal networks to send money home.”
One member of the Ethiopian diaspora in the United States, who spoke to The Reporter Magazine on condition of anonymity, said he had sent over USD 50,000 in April 2025 using such a network.
“A friend sold a home in Addis Ababa for 30 million birr,” he said. “I found people here who needed birr in Ethiopia and gave me U.S. dollars. My contacts in Addis delivered the birr locally using the parallel market rate.”
Such methods, while technically illegal, are both widespread and deeply entrenched. Critics argue that the new tax would only drive more remittance activity into the shadows, complicating enforcement and undermining its intended purpose.
“Enforcing this five percent tax could cost the USgovernment more in court proceedings than it would collect in revenue,” the same diaspora member added. “It’s neither effective nor efficient.”
Remittances have become the financial backbone for many developing nations, particularly as Official Development Assistance (ODA) declines and Foreign Direct Investment (FDI) becomes increasingly volatile. For countries like Ethiopia, they are more than just financial support—they are an economic lifeline.
In 2024, global remittance flows reached approximately $685 billion, surpassing FDI ($486 billion) and ODA ($212 billion), according to the World Bank. Nearly half of that amount is estimated to move through informal channels—untaxed, unregulated, and outside the reach of proposed legislation.
Ethiopia received a record USD 4.4 billion in formal remittances by June 2024 and secured USD 5.1 billion in the first nine months of the 2024/25 fiscal year, according to data from the Ethiopian Diaspora Service. The uptick, officials say, reflects the impact of recent policy reforms and an aggressive outreach campaign by diplomatic missions and the National Bank of Ethiopia (NBE).
“The surge is attributed to policy reforms and increased outreach by Ethiopian embassies and the National Bank,” said Ambassador Fitsum Arega, Director General of the Ethiopian Diaspora Service, during the Ethiopian Finance Forum held May 15–16 at the Science Museum in Addis Ababa.
Yet, the diaspora is far from monolithic. “Not all diaspora communities are the same,” Fitsum noted. “In the Middle East, for example, many Ethiopian migrants lack documentation or access to banking services, pushing them toward informal systems.”
More than 400,000 Ethiopians migrated to the Gulf region in the past nine months alone, he said—many of whom rely on cash-based agents or hand-delivered money to send remittances home. “This continues to fuel a large informal remittance market, despite the ongoing reforms,” he added.
By contrast, Ethiopians living in North America and Europe have better access to formal banking infrastructure. Still, many opt for informal channels to take advantage of favorable exchange rates.
“One of the significant achievements of recent macroeconomic reforms is the narrowing of the gap between the parallel market and the official exchange rate,” Fitsum said. “That alone is a major win—but informal flows persist, and I believe there are solutions.”
Globally, remittances account for trillions in financial flows, and Ethiopia’s share—though growing—represents only a fraction of its potential.
“Receiving USDfive or USD six billion formally is only part of the picture,” Fitsum noted. “It’s estimated that just 40 percent of remittances are coming through formal channels—leaving 60 percent untapped. That’s a huge opportunity.”
More than 2.5 million Ethiopians live abroad, with large communities in North America, Europe, and the Middle East. The Netherlands has also emerged as a notable destination, according to migration data from the International Organization for Migration (IOM).
As of 2024, 29 percent of Ethiopian emigrants resided in the United States—making it the preferred destination—according to the IOM’s 2025 Migration Governance Indicators profile.
In a bid to capture more of the diaspora’s remittance flow, the Ethiopian government has introduced a series of financial reforms. Most notably, the National Bank of Ethiopia shifted to a market-based exchange rate, sharply reducing the gap between official and black-market rates. That spread now reportedly stands below 10 percent.
“As a result, remitters are increasingly encouraged to use the banking system,” said Yenehasab Tadesse, Director of the Foreign Exchange Monitoring and Reserve Directorate at the NBE.
In September 2024, the central bank launched the “Debo” public awareness campaign alongside a digital platform dubbed “Unite-Ethiopia.” The platform enables members of the diaspora to open foreign currency accounts remotely—eliminating the need for visits to embassies or correspondent banks.
“With just a few clicks, users can compare bank products, check exchange rates, and choose among current, fixed, or savings accounts,” Yenehasab said.
Digital innovation is rapidly reshaping the global remittance landscape—and Ethiopia is no exception. Fitsum Merdassa, co-founder of Fast Pay Et, a fintech firm offering cross-border financial services, sees technology as a game-changer.
“Traditional remittance services charge between 5 and 10 percent in fees,” Fitsum said. “Our platform offers fast, low-cost, and accessible alternatives.”
Financial technology, he argues, has the potential to formalize what were once informal transactions, enhance transparency, and promote financial inclusion. But the digital transition isn’t without risk. As platforms expand, so do the threats of fraud and cyberattacks. “Investing in strong security infrastructure is key to sustaining user trust,” he cautioned.
Fitsum also called for a comprehensive national “Know Your Customer” (KYC) system integrated with Ethiopia’s digital ID framework, alongside regulatory reforms that foster innovation. He says policymakers must build an enabling environment for fintech growth by embracing technologies and updating outdated frameworks.
The government’s recent macroeconomic reforms—particularly those narrowing the gap between official and black-market exchange rates—are already yielding dividends, according to Fitsum. “With banks now offering competitive rates, there’s really no reason for anyone to use informal channels,” he said.
But not everyone agrees.
Ephrem Tesfaye, CEO of Ethio Forex Bureau, offers a more sobering assessment. For him, Ethiopia’s informal currency trade is not simply a matter of bad rates or inefficient services—it’s structural.
“The parallel market is deeply embedded in the broader informal economy,” he said. “It’s not just individuals—smugglers, contraband networks, and even some legitimate businesses operate in this space due to regulatory bottlenecks.”
Even with the exchange rate gap now reportedly below 10 percent, incentives to use informal channels remain high. “We can’t eliminate the black market overnight,” Ephrem admitted. “But with the right reforms, we can make formal alternatives more attractive and accessible.”
The five percent US remittance tax has cast a harsh light on the fragility of cross-border financial flows and the interdependence of global migration, finance, and regulation. For countries like Ethiopia, it’s both a cautionary tale and a rare window of opportunity—to modernize, digitize, and formalize a financial lifeline that remains as vital as ever.
