| Abstract: | The main objectives of this study was to assess the tax audit practice and examine its effect on tax evasion in Addis Ababa city administration Kolfe Keraniyo, sub-city small tax payer’s branch office. The descriptive research design along with qualitative research approach were used. The study used primary data collected using closed-ended questionnaire. Using simple random sampling technique about 161 respondents were selected from a total population of 270 tax payers. In addition, the sample includes 18 tax audit team and the 2 official which makes actual respondents 181. Descriptive statistics was employed to analyze each of the objectives in detail. The result shows that audit case selection indicates that the tax audit case selection strategy in the selected area was poor. Furthermore, the result shows Audit case selection is not done in cooperation with taxpayers whereas, taxpayers are not selected using statistical techniques using prior tax audit results. Overall, the audit case selection has not done based on the business sectors. In addition, the tax audit department lacks sufficient audit employees qualified and experienced staff, well-organized structure office continuous and adequate training for tax auditors. The findings of tax evasion shows that respondents in the research area had a low level of general knowledge about tax evasion and its effect on the economy. The result suggest that the rise of tax evasion reduce the amount of government services provided and they disagree with the idea that tax evasion harm the country's capacity to grow its economy. Tax evasion doesn't cause the government to incur needless debt in order to close the budget imbalance. Therefore it is recommended that the tax auditor should consider the business sector when selecting audit cases, tax auditors should develop a risk-based tax audit approach that entails identifying high-risk taxpayers, governments should raise taxpayers' awareness of tax evasion using different mechanisms |
