Civil society organizations in the shared society and peace-building space in Israel are facing mounting hurdles as proposed Knesset legislation to impose an 80% tax on foreign government donations follows a January freeze on all US state-department funding and moves to close USAID entirely.
New NGO Taxation Bill
On December 16, 2024, MK Ariel Kallner (Likud) reintroduced a controversial bill that aims to impose an 80% tax on foreign government donations to Israeli NGOs that do not also receive funding from the Government of Israel. On February 19, 2025, the bill passed a preliminary reading in the Knesset and is now in preparation for its first of three plenary readings, expected to conclude before the Knesset recess in April.
This legislation follows nearly two years of efforts to implement a clause from Section 36A of the Coalition Agreements, which includes a proposal to regulate foreign funding to Israeli NGOs operating in sensitive sectors like human rights and social advocacy.
The bill includes a clause that would prevent courts from hearing petitions from NGOs receiving over 50% of their funding from foreign states. The high tax rate would not apply to donations made to entities that also receive Israeli state funding. While the bill allows for certain exemptions, these would require approval from both the Minister of Finance and the Knesset Finance Committee.
If the bill passes, it could affect multiple NGOs, particularly those advocating for minority rights and democratic policies. NGOs relying on such foreign funding that would be most impacted include those focused on women’s rights, LGBT rights, human rights, environmental issues, and Jewish-Arab relations. This includes organizations working on behalf of the Arab community and promoting shared society between Jewish and Arab citizens.
Proponents of the bill, led by MK Kallner, contend that it is necessary to limit the influence of foreign governments in Israel’s domestic affairs. Supporters argue that foreign donations, especially from political entities, undermine Israel’s sovereignty and civil society, viewing the bill as a safeguard against external interference in internal politics.
Strong Criticism
While it is unclear whether this bill will pass, it faces strong criticism from domestic and international groups for its legality, as well as for stigmatizing the activities of for it would do to dealing with democratic and human rights. Human rights organizations and legal experts arguing it infringes on freedoms of association, expression, and access to judicial recourse. Dozens of civil society organizations addressed Knesset members before the vote, arguing that the proposal was designed to “harm anyone who criticizes and challenges the government’s conduct.” These groups also framed the bill as part of a broader effort by the government and coalition to undermine Israel’s institutional and civil checks and balances, including the legal system, government ministries, academic institutions, and civil society organizations. The “Zazim” movement submitted petitions with signatures from approximately 8,500 citizens, demanding that the legislation be stopped.
International partners, particularly from Europe and the United States, have also voiced concern that the bill could damage Israel’s democratic institutions and hinder international cooperation in areas like human rights and peacebuilding.
The Israel Democracy Institute has called the proposal unconstitutional, warning that it would severely damage Israel’s democracy. Experts Dr. Amir Fuchs and Prof. Mordechai Kremnitzer argue that it violates rights to association and free speech, as well as undermining protections for vulnerable populations and minority rights.After the vote, the Association for Civil Rights in Israel (ACRI) argued that the Nonprofits Bill, alongside other legislative measures weakening judicial independence, media freedom, and law enforcement, accelerates the erosion of Israel’s democratic foundations and paves the way for unchecked government control.
USAID Funding Freeze
On January 20, the U.S. State Department implemented a sweeping “stop work” order, freezing nearly all U.S. foreign aid globally, including USAID programs. Organizations receiving funds from MEPPA, MEPI, and other U.S. government sources were instructed to immediately cease activities with funding under review for 90 days, impacting both direct recipients and downstream partners. With USAID operations suspended and staff furloughed, communication with funding agencies has become nearly impossible, leaving NGOs in financial limbo.
According to a survey conducted by ALLMEP of its network of shared society and peace-building organizations, the freeze creates an immediate gap of approximately $21.4m in expected disbursements while risking millions in long-term commitments. One NGO supporting economic cooperation between Jewish and Arab citizens of Israel, and Palestinians estimates an immediate $300,000 shortfall, with a potential loss of $2.8 million over the next two and a half years if the freeze leads to permanent cuts. Many organizations now face difficult decisions, including staff layoffs, program cancellations and likely shutdowns.
Although the initial policy outlined a 90-day review period, on February 26, following the Trump administration’s decision to cut 90% of USAID’s foreign aid contracts, organizations instead began receiving Termination Notices of Award. These notices instructed recipients to immediately cease all activities, terminate all subawards and contracts, and avoid incurring any additional obligations beyond unavoidable costs associated with the termination. This decision effectively finalizes the funding cuts, leaving no opportunity for reinstatement.
While legal proceedings are ongoing, stakeholders are concerned that the long-term effects on this NGO ecosystem will be deeply disruptive, both to those whose funding was cut, the organizations they hire, and recipients of their services. Regardless of the legal outcomes, these impacts may be difficult to reverse.
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