ASSESSMENT OF TAX AUDIT PRACTICE IN THE CASE OF ERCA WEASTERN ADDIS ABABA BRANCH OFFICE

Abstract

Tax audit is a vital endeavor that assists governments in collecting appropriate tax revenue essential for budget, maintaining economic and financial order and stability. Tax audit helps to ensure that satisfactory returns are submitted by the tax payers, to organize the degree of tax avoidance and tax evasion, to ensure strict compliance with tax laws by tax payers, to improve the degree of voluntary compliance by tax payers and to ensure that the amount due is collected and remitted to government. In the case of Ethiopia, the responsibility to tax collection for the Federal Government rests with the Ethiopian Revenue and Custom Authority (ERCA). The main mission of the authority is to establish modern tax and custom administration dedicated to meet the requirement of the business community, encouraging voluntarily compliance combating smuggling, tax evasion and there by contributing to development of the country. It’s a fact that monitoring taxable activities and offsetting tax evasion would be challenging if a proper procedure is not in place and professional and technological capacity of the revenue administration is enhanced. The main objective of the study is to assess the tax audit practice at the Ethiopian Revenues and Customs Authority taking the Western Addis Ababa Branch Office of the Authority as a case. The research approaches used were both qualitative and quantitative case study approaches. The study has used questionnaire and interview as a data collection tools. The study has taken in to account all tax auditors at the branch. Since the sample size is equal to the population, the study has used a census survey. 150 questionnaires were distributed and the researcher has able to collect back 142 questionnaires (94.7% response rate). The result of the study showed that there are shortcomings in ERCA’s current tax audit practice hindering it from generating tax revenue. The results of the study revealed that clarity of the tax audit program, power to access tax payers information, audit case selection, performance as per the generally accepted standards and procedures, availability of sufficient tax audit staff to perform onsite audit, availability of continuous assessment and provision of training, effectiveness of tax audit program in achieving pre-set objectives and management support and responsiveness to tax audit findings are among the major areas where gap is observed and need an attention. The researcher recommends the authority to give due attention and to work on the above identified area, so that it can achieve improvements in the performance of the tax audit practice