Effects of Tax Audit on Revenue Collection Performance in Ethiopia:Evidence from ERCA Large Taxpayers’ Branch Office

Goshu Desalegn

doi:10.7176/rjfa/11-7-01

Abstract

This study examines the effect of tax audit on revenue collection performance evidenced from ERCA-LTO. The objective of the study is to examine the effect of tax audit on revenue collection performance. In doing so, tax audit is measured by nine variables (tax audit resources, audit case selection, capacity of auditors, tax protection system, tax automation, and tax evasion, and tax compliance, amount before and after audit). The study uses explanatory research design and mixed research approach with secondary data utilized over the study period 2005-2011 E.C (7 years). The data is collected both from primary and secondary source of data. More specifically, the study adopts a multiple regression model. The finding of the study reveals that; tax compliance, revenue protection system, and tax automation has positive and significant effect on revenue collection and statically significant at 1%, 1% and 5% significant level respectively. Furthermore, audit case selection and auditors capacity has a positive and significant effect on revenue collection performance at 10 percent significance level. Apart from this, the variable tax audit resource, tax evasion and before audit amount has a negative effect on revenue collection and statically significant at 1 percent significance level. On the other hand the amount after audit has positive and insignificant effect on revenue collection performance. Keywords : Tax audit, Revenue collection, multiple regression analysis DOI: 10.7176/RJFA/11-7-01 Publication date: April 30 th 2020

Highlights

The development of any nation depends on the amount of revenue generated and applied by the government on public infrastructure for the benefits of members of that society
One may ask, why this low tax to GDP ratio for Ethiopia? Is it due to the structure of the economy? Is it due to the inefficiency of the tax administration in tackling exhaustively all tax revenue potential or what? ; this study seeks to answers what are essentially the effects of tax audit on revenue collection in Ethiopian Revenue and Customs Authority large taxpayers’ branch office? So, the main objective of this study is to examine the effects of tax audits on revenue collection in ERCA by taking a case study of large taxpayers’ branch offices
The result of regression analysis implies that 1 units increase the amount of tax after audit cause’s revenue collection performance to increase 0.6 percent and not statically significant even at 10 percent significance level

Summary

Introduction

The development of any nation depends on the amount of revenue generated and applied by the government on public infrastructure for the benefits of members of that society. No economy can grow without adequate resources for infrastructural development and provision of power and public utilities and services. There is growing international interest in improving the ability to develop countries to mobilize domestic revenue from different resources (Damme et al, 2008). Domestic resource mobilization (DRM) refers to the process in which countries raise domestic resources and spend these funds to provide goods and services to their people. This includes tax collection, non- tax revenues, domestic borrowing, and other domestic income sources but it doesn’t necessarily have to mean introducing new taxes or increasing the tax rates. Developing countries have had difficulties in mobilizing resources for investment from domestic sources

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Conclusion