Beyond the Price Tag: How VAT Affects Households in the Democratic Republic of Congo (DRC)

The nationally representative 2020 Household Survey for the Democratic Republic of Congo (DRC) was conducted by the National Institute of Statistics, with support from the World Bank and development partners. It gathered key information across the country regarding household income, expenditure, and consumption and it clearly shows how Value Added Tax (VAT) quietly touches every Congolese household-and how its effects differ by income.

The DRC introduced VAT in 2012 to modernize taxation and replaced the old turnover tax. Unlike mining revenues, which fluctuate with global prices, VAT can provide a more stable funding source. Over time, it can strengthen fiscal resilience, reduce reliance on external financing, and create room for investments in infrastructure, social services, and development.

Who benefits from VAT exemptions? Essential items like rice, meat, and salt benefit from a reduced VAT rate, while others, such as palm oil and maize, are fully exempt. These measures aim to protect low-income households. However, analysis of household survey data shows that wealthier families-who tend to buy more-capture most of the benefits from reduced rates (Figure 1). That makes it challenging to target support to those who need it most.

Figure 1: Most VAT tax expenditures benefit high income households.

Source: WB staff calculations based on the 2020 Household Survey data.

Each year, the government loses about 0.82% of GDP in revenue due to multiple VAT rates-slightly more than the annual social safety net spending (0.7% of GDP). Simplifying VAT rates could increase revenue and enhance equity, as the current system mainly benefits wealthier households. Additional revenue could enable the government to better support families through targeted investments in education, health, or direct transfers. A fairer VAT system could both raise revenue and better serve those most in need.

For low-income households, every franc counts. A large share of their income goes to essentials like food and basic household goods (Figure 2). They rely on staples-cassava flour, maize, and palm oil-that are filling and familiar. Yet, some of these goods are taxed at the standard VAT rate of 16%, increasing the cost of daily living.

Figure 2: Majority of the income for the poor is allocated to food and basic goods

Source: WB staff calculations based on the 2020 Household Survey data.

Wealthier households spend a smaller share of their budgets on these essentials, allocating more to services and higher-value items. Their purchases spread the tax burden across a broader set of goods.

While staples like maize and some locally produced rice benefit from reduced VAT rates-sometimes 0 or 8% - many commonly consumed foods, including several cereals and cooking oils (except palm oil), remain taxed at 16% (Figures 3).

Figure 3: Households fall mostly in the most taxed bracket

Source: WB staff calculations based on 2020 Household Survey data for consumption of food.

For low-income households, even though much of their spending goes to reduced-rate items, necessities taxed at the standard rate still create a heavier burden. Higher-income households, with more varied consumption, face a relatively lighter tax impact on essentials.

Spending patterns underscore this difference. Low-income households prioritize low-cost, locally available staples like palm oil, cassava flour, and maize flour. Higher-income households still buy staples but add variety and higher-cost foods (Figure 4), reflecting their greater disposable income.

Figure 4: Lower-income households prioritize staples, while higher income households prioritize variety

Source: WB staff calculations based on 2020 Household Survey data for consumption of food.

This is not only a story about foods - it's a story about fairness. Poorer households spend a larger share of their income on taxed essentials. The survey shows low-income families allocate about 41% of total spending to items taxed at 16%, compared to 36% for high-income families. Ironically, reduced VAT rates designed to enhance affordability often benefit those with greater spending power.

Where people shop also matters. Low-income households buying in informal markets-where VAT is less consistently applied-experience less tax pressure. Accounting for informal purchases, only about 12% of their total expenditure goes to items taxed at the full 16%. Markets and shops shape how taxes affect people's lives as much as the rates themselves.

Policymakers face a clear challenge: using VAT to fund essential services without deepening inequality. Options include reassessing which goods qualify for reduced rates, strengthening refund mechanisms, and complementing VAT with targeted support for low-income households. A simpler VAT structure could improve equity and raise revenue-freeing resources for investments that matter most to families.

Every market visit and shopping basket reflects how tax policy meets daily life. As the DRC refines its VAT, aligning revenue goals with fairness can help ensure all households meet their needs without undue strain. These dynamics are part of a wider picture captured in the latest DRC Economic Update, which assesses the impact of tax incentives in the country. VAT, while only one component, illustrates how tax policy design and implementation can shape both the revenue and distributional outcomes.

This feature was written by Kaushiki Singh and Mahugnon Stanislas Cedric Deguenonvo