ASSESSMENT OF TAX AUDIT PRACTICE AND ITS CHALLENGES: IN THE CASE OF LARGE TAXPAYERS OFFICE, ERCA.

Abstract

Tax audit is an activity or a set of activities performed by Tax auditors to determine taxpayer’s correct tax liabilities for a particular accounting or tax period. Many countries have adopted a self-assessment system (SAS) including Ethiopia; Tax audit is a key feature of the self-assessment system (ERCA2010). The researcher believes that researches on this area will have invaluable contribution for the tax authority to achieve its objectives and to improve its tax administration. The main objective of this study is to assess the tax audit practice and its challenges in the case of large taxpayers’ office and tries to assess the application of IT in tax audit, the proficiency of auditors, functions of auditing in the reduction of tax evasions and avoidances and how it is exercised to increase the compliance level of taxpayer. To achieve these objectives descriptive method of research was used and both quantitative and qualitative research approach were used and, data were collected from primary and secondary sources, the primary data were collected using survey method from the tax audit staffs and large taxpayers’. The primary data were collected from a well-structured questionnaire distributed to 55 tax audit staff respondents and out of these 45 were returned and distributed to 67 taxpayers’ respondents out of which 58 were returned and the secondary data was from scholarly published studies, internet sources, journals and ERCA published and unpublished documents. The analysis provided the tax audit has problems in the application of information technology /SIGTAS/ maximum its capacities, incompetent auditors to tackle tax evasion and avoidance, weak taxpayers’ education program which cannot improve the compliance level of taxpayers’. The study concluded that if tax audit were conducted by competent auditors, and supported by IT, it would have resulted in effective tax administration, improved compliance level and increased tax revenue. The study recommended that the tax authority /ERCA/ should improve the capabilities of tax auditors, and apply IT in its audit to its maximum. As far as the knowledge of the researcher is concerned, no research has been done on the tax audit practice and its challenge in large taxpayer’s office.