The 2020 Household Survey in the Democratic Republic of Congo (DRC), conducted by the National Institute of Statistics with support from the World Bank and development partners, provides insight into how Value Added Tax (VAT) affects different households across the country.
Introduced in 2012, VAT replaced the previous turnover tax to modernize taxation in DRC. Unlike mining revenues, which can fluctuate due to global price changes, VAT is seen as a more stable source of government funding. Over time, it could help reduce dependence on external financing and create opportunities for investments in infrastructure and social services.
Certain essential items such as rice, meat, and salt are subject to reduced VAT rates, while products like palm oil and maize are exempt. These exemptions aim to protect low-income households. However, data from the survey indicates that wealthier families benefit most from these reduced rates because they purchase more goods overall. This makes it difficult for tax policy to target relief toward those who need it most.
Government revenue losses due to multiple VAT rates amount to about 0.82% of GDP annually—slightly exceeding what is spent each year on social safety nets (0.7% of GDP). Simplifying VAT rates could increase revenue and improve equity since current arrangements mainly favor wealthier households. Additional funds raised through reform could be used for targeted support such as education or health programs.
Low-income families spend a significant portion of their income on food and basic household goods. Many staples—cassava flour, maize, and palm oil—are important parts of their diet but some are still taxed at the standard rate of 16%, making daily life more expensive for these groups.
Wealthier households allocate less of their budgets to essentials and spend more on services or higher-value items. As a result, they experience a lighter tax burden on basic goods compared to lower-income groups.
Even though low-income families often buy reduced-rate items, necessities taxed at 16% continue to weigh heavily on their finances. Higher-income families have greater flexibility due to varied consumption patterns.
Spending habits further highlight these differences: poorer households focus spending on staple foods while wealthier ones diversify their purchases with higher-cost options.
Another factor is where people shop; many low-income consumers rely on informal markets where VAT is not always enforced consistently. When accounting for informal purchases, only about 12% of low-income household expenditure goes toward fully taxed items.
The challenge for policymakers is balancing VAT’s role in funding public services without worsening inequality. Potential solutions include reviewing which goods receive reduced rates or improving refund mechanisms while also providing direct support for vulnerable populations.
These issues are discussed in detail in the latest DRC Economic Update—a publication that evaluates how tax incentives impact national outcomes—with VAT serving as an example of how tax design influences both government revenue and distribution among citizens.
"This feature was written by Kaushiki Singh and Mahugnon Stanislas Cedric Deguenonvo"