Effects Of Tax Audit On Revenue Collection In Addis Ababa Revenue Bureau: The Case Of Medium Tax Payers in Arada Branch Office, Addis Ababa, Ethiopia

Abstract

This study examines the effect of tax audit on revenue collection performance evidenced from Medium Tax Payers in Arada Sub City of Addis Ababa. The objective of the study is to examine the effect of tax audit on revenue collection performance. The researcher will use an explanatory research design to examine the effect of tax audits on revenue collection. In doing so, tax audit is measured by five variables (tax audit resources, audit case selection, capacity of auditors, revenue before and after audit). The study uses both descriptive and explanatory research design and mixed research approach with primary data mainly Survey. The data were 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 audit case selection and auditors capacity has a positive and significant effect on revenue collection performance at 5 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. The regression model output showed the coefficients, standard errors, t-values, and p-values for explanatory variables. The R-squared and Adjusted R-squared statistic of the model were 75.7% and 72.8% respectively. On the other hand the correlation r is equal to 0.870, which shows there is strong relationship between the independent variables and the dependent variable (RC). In addition to this the R square is 75.7%, which indicates that up to 75.7% of Revenue collection is due to the independent factors and the remaining 24.3% is affected by other factors. Its suggested that in order to improve Tax revenue collection from medium Tax Payers at Arada Sub city, the capacity of auditors need to be improved, Tax case selection is done in a continuous manners and Tax education is given to Medium Tax payers of the sub city.