The Effectiveness of Tax audit on Revenue Collection: The Case of Ethiopian Revenues and Customs Authority Large Taxpayers Branch Office (LTO)

Abstract

The main objective of this study is to find out the effectiveness of tax audit on revenue collection in Ethiopian Revenues and Customs Authority Large Taxpayers Branch office regarding the effects of tax incentive and exemption , legal framework , risk selection criteria and auditors performance and management support on effectiveness of tax audit and revenue collection . The target groups for the study were 85 tax auditors for questioners and six managers and supervisors for interview by censes method used. The study also uses secondary data collected from a sample of 33 audited taxpayers in three consecutive years from 2012-201 by convenience sampling method. Data was then analyzed on quantitative basis using Pearson’s correlation, linear regression analysis and descriptive statistics. The result of the study revealed that tax audit effectiveness in LTO was determined by the following core issues legal frame work, audit selection process and auditors’ performance and management support. And also tax incentives and tax exemption have a negative impact on the effectiveness of tax audit in revenue generation. The amount of tax collected from a certain company after the audit and total tax paid it’s clear that after the audit the taxpayers paid more tax. LTO should give emphasis for all level of taxpayers audit selection process by using the separate risk criteria for each sectors to identify taxpayer compliant and non-compliant taxpayers, maximize the revenue collection and minimize the tax office and taxpayers administrative cost. The revenue office should give attention to increase the audit coverage to gain additional revenue from the audit