A progressive property taxation scheme for greater tax equity in the DRC

Low tax revenue is a major challenge facing governments in low-income countries, which collect one quarter as much revenue as a share of GDP as high-income countries (World Bank, 2015). Without sufficient revenue, such governments are constrained in their ability to provide the public goods and institutions necessary to sustain economic development. They are also unable to use redistributive policies to counter inequality, which is large and persistent in developing countries.

Progressive taxation has potential to increase revenue by collecting more from those with greater ability to pay, thus increasing tax compliance by improving the perceived fairness of the tax system. Yet, in many developing countries, tax authorities use simplified instruments—e.g., flat property tax schedules. While less resource-intensive to administer, simplified instruments are much more regressive than developed country tax systems and are widely viewed as unfair. The regressive nature of tax systems in developing countries may thus constrain tax revenue while also potentially exacerbating economic inequality.

Previous work conducted by ODEKA’s research team with the Provincial Government of Kasaï-Central in 2018-2019 demonstrated that reducing individual property tax rates raised compliance and revenues. Building on these results, the provincial government seeks to evaluate whether implementing more progressive tax rates throughout the tax schedule can boost compliance across all taxpayers.

This project, implemented in close collaboration with the Direction Générale des Recettes du Kasai-Central (DGRKAC), the provincial tax authority and ODEKA, hence examines whether progressive property taxation can increase tax compliance and revenues in the Democratic Republic of Congo (DRC), one of the poorest countries in the world, where taxation capacity also ranks among the lowest. Through the close partnership with the tax authority of Kasai-Central, the team will conduct an evaluation comparing neighborhoods in the provincial capital of Kananga assigned to either the existing, regressive flat fee schedule, a proportional tax rate schedule, or a schedule of progressive property tax rates. The team will study effects on total revenue, household compliance, and perceptions of fairness and tax morale to inform the design at scale of a tax schedule that best balances revenue and fairness.

The evaluation, funded by FID, will encompass approximately 60,000 properties in all the 432 neighborhoods of Kananga. In tandem, the research team is facilitating the implementation of a new digitized tax system in Kananga (funded by the International Centre for Tax and Development), which will for the first time construct a comprehensive database of properties and assessed values. This system will provide the necessary basis for the experimental variation in tax schedules as well as strengthen the provincial government’s ability to administer taxation going forward.

By helping to address acute revenue shortfalls, the project would strengthen the government's ability to achieve key objectives, such as:

• Improve infrastructure and public service delivery (local roads and infrastructure, public transportation, and trash collection)
• Enhance state efficiency while shifting the burden of state revenue needs onto those with the greatest economic capacity