Does Audit Quality Matter? Evaluating Tax Audit Quality's Impact on Tax Compliance

Abstract

Tax audit is an activity performed by Tax auditors to determine at taxpayer’s correct tax liabilities for a particular tax period. The aim of this study is to assess the effect of tax audit quality and effectiveness on tax compliance perception of taxpayers, on tax auditor’s perspective, since the number of the population to be studied is small and there are 94 tax auditors and team leaders the study was applied census approach. The response variable of interest is ordinal in nature then the data was analyzed using ordered logistic regression model. The findings from the study results exposed that both tax audit quality and tax audit effectiveness have a positive significant effect on tax compliance behavior of the taxpayer. Being 16.7% more likely to be highly compliant and 6.32% less likely to be low compliant are correlated with every one point increase in tax audit quality. Additionally, a unit increase in tax audit effectiveness is related to an 11.8% rise in highly compliant behavior. Accordingly, the tax office ought to have paid periodic attention to the quality of the tax audit file, because higher-quality tax audits will result in higher rates of tax compliance, and the tax office could increase the quality of their audits by providing auditors with ongoing training, improving IT usage, educating taxpayers, and encouraging all necessary voluntary compliance.

Keywords: tax audit, compliance, audit quality, effectiveness

DOI: 10.7176/IEL/15-2-02

Publication date:August 31^st 2025