Abstract:
Taxation is the earliest and most common form of government with the economic life of individual and business enterprises (Clement et al, 2018). In Ethiopia, the modern tax system dates back to Emperor HaileSelasie Regime (1940s). To Manage scarce audit resources wisely, target high risk taxpayers, and make tax audit more efficient and effective risk-based audit selection is very im-portant (World Bank, 2011; ERCA,2010). The major objective of this study was to assess the prac-tices and challenges of risk-based tax audit in North Western Addis Ababa Small Taxpayers Branch Office, Ethiopia. In order to achieve its objectives the study was adopted descriptive re-search design with mixed research approach. Specifically, the techniques used in the study include questionnaires with tax auditors, in-depth interviews with tax audit team leaders, focus group dis-cussion with tax appeal resolution officers, and documentary analysis. The result of the study re-vealed moderate level of tax auditor’s proficiency and competency and absence of well-established tax audit training strategies. Further; there was weak risk-based case selection practice, extensive application of comprehensive tax audits and analytical review audit technique. The branch has moderate level of tax audit performance and the core causes for tax auditee’s tax appeal include; low tax awareness among tax auditors and tax payers, tax law ambiguities and complexities, tax agents and external auditors’ illegal interaction, and low feedback mechanism on tax appeal deci-sions. Generally, the tax audit practiced was not effusive risk based and the branch should give emphasis on enhancing the competency and capability of the tax auditors, selecting taxpayers on their associated risks, emphasize on spot/issue-oriented audits, work on solving core causes of tax auditees tax appeal, and take possible measures to mitigate problems in the tax audit practice. Without enhancing the capacity of the tax auditors and effusively applying risk-based tax audit, tax evasion and low tax compliance will continue to pose major challenges in implementing risk based tax audit. In conclusion, besides meeting its objectives the results of this study provide some fasci-nating new insights into tax audit practice and challenges. Implementing effective audit strategy is a key success factor in tax fraud detection, proactively preventing frauds and tax evasions. Final-ly, the researcher recommend the N/W/A/A/S/T/B/O must give training for audit staff continuously based on the auditor’s skill gap in order to improve audit rate, increase audit detection and audit quality
