Tax Audit Performance in Ethiopia: The Case of Western Addis Ababa Small Taxpayer Branch office

Abstract

DOI: 10.7176/JESD/11-19-06

Publication date:June 30th 2020

1. 1. Introduction

A tax is a compulsory levy by government through its agencies on personal income, business profits, consumption, and capital of its citizens to generating revenue for government to furnish for its expenditure (World Bank, 2011). Taxation system is as old as the world itself and Tax audit has been known since the biblical era (Nwaiwu and Macgregor, 2018). Tax audits are for the most part used to detect and redress taxpayers’ noncompliance and increase future compliance. An effective and efficient audit strategy is mainly based on training and incentive programs for tax auditors, the performance of information technology (IT), and adequacy of the legal framework for audits, applying appropriate case selection methodology (World bank, 2011; Marshall and Pomeranz, 2013).

Tax audit is among the most effective deterrence measures in raising additional revenue, increasing tax compliance and, lowering future noncompliance. Effective tax audit practice selects tax audit cases based on their associated risks and for the selected taxpayers the tax auditor could apply various techniques and procedures depending on the area of risk and the circumstances of the particular taxpayer (World Bank, 2011; ERCA, 2010; Ethiopian Ministry of Revenue, now after MoR, 2019). Despite the many strategies practiced by tax organizations in developing countries, the failure to collect the potential tax revenue is persisting and, the tax-to-GDP ratio is lower than their target (Bird, 2008; African Economic Outlook, now after, AEO, 2019).