Effectiveness of Tax Audit: A Study in Kembata Tembaro Zone, Southern Ethiopia

Abstract

Purpose- The aim of the study is to assess factors affecting tax audit effectiveness as effective tax audit enhances tax administration.

Research methodology – To achieve objective of the study, both qualitative and quantitative research methods have been employed. The Sample respondents selected for the study were 146 by employing purposive sampling technique out of which 106 questionnaires were returned back.  Descriptive statistic and multiple linear regression analysis via Statistical Package for Social Science (SPSS) Version 20.0 were employed.

Findings- The result revealed that management support, audit quality, taxpayers’ awareness, and standardized integrated government tax administration system have statistically significant positive effect on audit effectiveness, while tax law complexity and tax accounting and reporting have statistically significant negative effect on tax audit effectiveness.

Research limitations- The empirical research was carried out on tax audit effectiveness by using tax officials who are working in Tax Authority, but it did not include taxpayers in the study. Because of this and limited scope of the study area may not ensure that the indicated results are characteristic for the tax audit activity in Ethiopia at national level. Future researchers on the topic can include taxpayers’ opinion and widening the scope of the study area.

Practical implications-  It is recommended that the concerned authority should simplify the area of complex tax laws and encourage taxpayers who declare using relatively good accounting system by assessing tax on their accounting records rather than assessing by estimation. In addition, assessing tax on the specified period of five years to save taxpayers from the unnecessary burden of penalty and interest.

Originality/Value- Previous studies din not address effect of tax audit in tax administrative functions on taxpayers’ registration, return reporting and effect of SIGTAS on tax audit.