I. Value
Added Tax [VAT] in the Democratic
Republic of Congo [DRC]: Development and rate. Almost
unknown in 1960, the value added tax (VAT) is now found in more than 130
countries, raises around 20 percent of the world’s tax revenue[1], and has been the
centerpiece of tax reform in many developing countries including the Democratic
Republic of Congo. VAT (Taxe sur la valeur
ajoutée - TVA) is a consumption tax paid on certain goods and services
purchased in the Democratic Republic of Congo (DRC) and is included in the sale price of these
goods and services. In August 2010, The President of the Republic signed a
decree replacing the sales tax “ Impot sur le chiffre d’Affaires” (ICA) with a
value-added tax (VAT), which was introduced on January 1, 2012[2]. The standard rate of value added tax in the DRC is 16 percent.
II.The VAT popularity vs unpopularity discourse in the DRC In the DRC, the value added tax (VAT) is imposed on
all types of general consumption. In other words, the VAT
applies to all supplies of goods and services and importation of goods and
services. 2.1. VAT is popular for some reasons as compared to
sales tax. In practice VAT is likely to generate more
revenue for government than sales tax since it is administered on various
stages on the production – distribution chain. With sales tax, if final sales
are not covered by the tax system e.g. due to difficulty of covering all the
retailers, particular commodities may not yield any tax. However, with
VAT some revenue would have been collected through taxation of earlier
transactions, even if final retailers evade the tax net. There is also in-built pressure for
compliance and auditing under VAT since it will be in the interest of all who
pay taxes to ensure that their eligibility for tax credits can be demonstrated. VAT is also a fairer tax than sales tax as it minimizes or eliminates the
problem of tax cascading, which often occurs with sales tax. These are facilitated
by the fact that VAT operates through a credit system so that tax is only
applied on value added at each stage in the production – distribution
chain. At each intermediate stage credit will be
given for taxes paid on purchases to set against taxes due on sales. Only
at consumption stage where there are no further transactions will there be no
tax credits. Lack of input credit facility in sales tax
often results in tax on inputs becoming a cost to businesses, which are often
passed on to consumers. Sales tax is often applied again to the sales tax
element of the cost, thus there is a problem of tax on tax. This is not
the case with VAT, which makes it a neutral tax as it provides the least
disturbance to patterns of production and the generation and use of income. In addition, the audit trail that exists
under the VAT system makes it a more effective tax in administration terms than
sales tax as it helps with the verification of VAT amounts declared as
due. This is made possible by the fact that one person’s output is
another’s input. As with sales tax imports are treated the same way as local
goods while exports are zero- rated to avoid anti-export bias. There is also another major advantage of value added
tax is that under this system all traders are dealt equally. Well applied, it
also involves minimum distortionary effects on economic activities. Could this
be the case in the DRC? Wait and see! 2.2. Fears and unpopularity of VAT
in the DRC Notwithstanding the advantages mentioned above, it is
worth noting that VAT is a considerably complex tax to administer compared with
sales tax. With the size of the DRC and the lack of infrastructures, it may be
difficult to apply to some companies and other informal businesses due to
difficulties of record keeping and its coverage in some areas and services
sector may be limited. Since the application of the VAT in DRC dated 1
January 2012, the equity impact of the relatively high rates have been a cause
for concern as it is possible that the poor spend relatively high proportions
of their incomes on goods subject to VAT. In this regard, one could
affirm that related
to income VAT is therefore regressive.
This is true as when
someone with an income of 100 buys a basket of goods on which a VAT of 16 is levied,
16% of his/her income goes to VAT. If someone with an income of 1000 buys the
same basket the percentage of income going to VAT is only 1.6%. As demonstrated, a
uniform VAT rate on all goods and services is regressive when related to income
and there is need to think how to reduce rates in the DRC in order to decrease
the regressive effect of VAT on income. To reduce this regressivity we can
suggest introducing the dual rate system in the DRC. With that, goods and
services that are relatively important for the lower income categories should
be subjected to a reduced VAT rate. So, there is a certain basket of goods and
services subjected to a standard VAT rate and a basket subjected to a reduced
rate.
--------- [1] Michael Keen and Ben Lockwood, The Value Added Tax: Its Causes and Consequences, May 2007 [2] Ordonnance -
loi n° 10/001 du 20 août 2010 portant institution de la taxe sur la valeur
ajoutée
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