The practices and challenges of tax audit: Case study on Finfinnee branch office of Oromia revenue authority

Abstract

The study was concerned with assessing practices and challenges of tax audit in Oromia. To achieve this objective, a sample of 112 taxpayers and 42 tax officials with a questionnaire survey were conducted at Finfinne Branch Office of Oromia Revenue Authority, in Addis Ababa, for the year 2021/2022. Both descriptive and quantitative methods of analysis were used. In addition, interviews were conducted with Deputy Head, Branch Manager, Tax Audit Director and Tax Audit Team Leaders of ORA and the Branch office. The findings revealed that the practices to achieve ultimate goals of tax audit was found at moderate level; Tax Auditors of the Office do not make sufficient efforts to create Taxpayers’ awareness; they usually focus on increasing the collection of government tax revenue, including detecting tax evasion and avoidance, and not proportionally focus on all types of tax audit techniques. The finding further indicated that, majority of tax audit cases were usually selected using the criteria of the annual profit declared by taxpayers and there is no well-established strategy that makes tax audit case selection efficient and effective. Overall, the practices of tax audit at Branch Office were poorly practised. Regarding the challenges of tax audit, factors related with culture of corruption, estimation of tax amount; consideration of illegal ways of doing business; and absences of reliable and up-to-date record keeping practices among taxpayers were identified as the most severe challenges. Thus, managers in the tax administration should exert their strategic effort on the essential factors. Moreover, policymakers need to develop and apply improved schemes on key recommendations of the study include developing and utilising risk-based tax audit, coordinating sector offices’ efforts, and maintaining public trust in the tax administration. Future research should extend on the risk-based tax audit strategy and to catch up on the other unexplained factors by this study.