The Effect of Tax Audit on Tax Compliance: In the Case of Burayu City Administration Revenue Authority

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Addis Ababa University


The major objective of this study was to assess the effect of Tax Audit on Tax Compliance: In the case of Burayu City Administration Revenue Authority. The study employed quantitative research method where purposive sampling in the case study carried out. Survey was conducted with selected all tax auditors in Main Office and sub cities, quality controllers And Head managers of Main office and three sub cities Gefersa Burayu, Gefersa Nono and Burayu Keta working at Burayu City Administration Revenue Authority. Actual sample size achieved was all 16(sixteen) Tax Auditors in Main office and sub cities, 5(five) Quality controllers in Main office and 4(four) head managers of main office as well as sub cities. Results of the study reveal that regarding education, tax rate and probability of being audited do have an impact on the effect of tax audit on tax compliance. Regarding education, experience and capacity on tax audit function of Tax Auditors, the findings of this study indicated that, all of them were assigned to their current jobs through internal transfer, and by recommendation of Authorities of the City. Moreover, all of the Auditors did not attend any training programs related to their current job during the past years of their services at city. Yet, the results of this study revealed that, there is no a well-established strategies that make Tax Auditors competent and efficient on their job on continuous bases. With regard to probability of being audited, the study has revealed that educating the tax payers and conducting consultation session; Audits can assist to clarify the application of the law by every taxpayer and to identify improvements required in book keeping and thus may contribute to improved compliance by taxpayers in the future. Identify areas of the law that require clarification: Audits may bring to light areas of the tax law that are causing confusion and problems to large numbers of taxpayers and thus require further efforts by the revenue body to clarify the laws’ requirements and/or to better educate taxpayers on what they must do to comply into the future. With regard to Tax rate the study reached in a conclusion that the Tax payers should evade tax if tax rates are too high. From this response it is clear that the tax rate is not based on the ability-to-pay principle or it is perceived to be unfair by taxpayers. Even though the principle says, tax should be based on the ability- to pay; the problem here is in determining this ‘ability’ for each taxpayer. the communication gap between the tax authority and taxpayers might have created this perception (i.e., the tax rates are too high) and it continues to be the issue as far as the understanding of the taxpayers regarding tax rates, assessment, calculation etc is low. Key recommendations of the study include: regard to Education; To make tax Audit staffs sufficiently experienced and capacity on tax audit functions, effective probability of being audited; to educating the tax payers and conducting consultation session and make effective tax rate through tax payers should evade tax if tax rates are too high and if the system is unfair.


A Project paper Submitted to the Department of Accounting and Finance in partial Fulfillment of the Requirements for the Degree of Masters of Science in Accounting and Auditing


Education, Probability of being audited, Tax Auditor, Tax Compliance