IMPACT OF TAX AUDIT ON IMPROVING TAXPAYERS COMPLIANCE: EMPERICAL EVIDENCE FROM ETHIOPIAN REVENUE AUTHORITY AT FEDERAL LEVEL

Abstract

Tax audit can play a major role in improving tax administration and overall taxpayer compliance by impacting on taxpayer behavior. The study has attempted to examine the impact of tax audit on tax compliance in Ethiopia, at federal level by using secondary macro data. To analyze the data the partial coefficient regression statistical analysis method was employed. The Pearson correlation and bivariate regression result shows, there is a strong association between probability of audit detection and the level of tax compliance. The regression result also reveals that there is a strong association between the number of audited files and the level of tax compliance. Pearson Correlation and partial regression coefficient result shows that the there is a strong association between probability of audit detection and the number of audited files with the level of tax compliance. The partial coefficient regression result shows that the joint effect of probability of audit detection and number of audited files highly improves the level of tax payer’s compliance over the individual effect. The study concludes that since the contribution of tax audit on improving tax payer’s compliance is significant among other measures, revenue authorities of the country and other concerned parties should give more emphasis on the role of tax audit by fulfilling the required staff and qualifications to improve tax payer’s compliance and thereby increasing countries revenue through tax.