ADDIS ABABA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE
(GRADUATE PROGRAM IN ACCOUNTING AND AUDITING)

TAX AUDIT IN OROMIA REVENUE AUTHORITY:

PRACTICES AND CHALLENGES

BY
TESFAYE BEKELE SENBETA

January, 2018
Addis Ababa, Ethiopia
 TAX AUDIT IN OROMIA REVENUE
AUTHORITY: PRACTICES AND
CHALLENGES

A Project report Submitted to Addis Ababa University, College

of Business and Economics, Department of Accounting and
Finance in Partial Fulfillment of the Requirements for Master of
Science Degree in Accounting and Auditing

By
Tesfaye Bekele Senbeta

January, 2018
Addis Ababa, Ethiopia

i
 Declaration
I have carried out independently a thesis on “Tax Audit in Oromia Revenue Authority: Practices
and Challenges” in partial fulfillment of the requirements of the MSc Degree in Accounting and
Auditing with the constructive guidance and support of the research advisor.
This thesis is my own work that has not been presented for any degree or diploma program
in this and any other institution, and that all source of materials used for the thesis have been duly
acknowledged.

Tesfaye Bekele Senbeta

Signature____________________

January 2018
Addis Ababa

ii
 Statement of Certification
This is to certify that Tesfaye Bekele Senbeta has carried out a thesis on the topic entitled “Tax
Audit in Oromia Revenue Authority: Practices and Challenges” under my supervision. In my
opinion, this thesis is suitable for submission in partial fulfillment of the requirement for the
award of the MSc Degree in Accounting and Auditing.

Advisor: Wollela Abehodie (PhD)

Signature: ________________________

Date: _________________________

Approved by:

Name: ______________________________

Signature: __________________________

Date: _________________________

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 Approval of Board of Examiners
As members of thesis Approval Board of Examiner we certify that we have read the thesis
prepared by Tesfaye Bekele Senbeta, entitled “Tax Audit in Oromia Revenue Authority:
Practices and Challenges” and submitted in partial fulfillment of the requirements for the MSc
Degree in Accounting and Auditing complies with regulation of the university and meets the
accepted standards with to originality and quality.

Approved by Board of Examiners

_____________________ __________________ ________________

Chairperson Signature Date

__________________ __________________ ________________

Advisor Signature Date

_____________________ __________________ ________________

Internal Examiner Signature Date

iv
 Abstract
The major objective of this study was to assess the practices and challenges of tax audit in Oromia
Revenue Authority. The study employed mixed research method where survey design and in-depth
interviews were employed. Survey was conducted with selected taxpayers and tax auditors working
at Oromia Revenue Authority. Actual sample size achieved was 213 (94.25%) for taxpayers' survey
and 32 (96.97%) for tax auditors survey. In addition in-depth interviews were conducted with
Deputy Head, Tax Audit Director and Tax Auditors Coordinator of Oromia Revenue Authority.
Results of the study reveal 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 gathering and collecting information on health of the Tax system
including compliance behavior of the Taxpayers, the Office did not proportionally focus on all types
of Tax Audit techniques; most of the time Tax Audit activities were done without schedules, and
carried out arbitrarily. Overall the practices of Tax audit at Head Office level of the Region was
poorly practiced. The finding further indicated that, majority of Tax Auditors were assigned to their
current jobs through internal transfer; the number of newly employed Tax Auditors accounts only
6.25% of all Tax Auditors; they did not attended training programs related to their current job
during the past two years of their services at the Office. Yet, the results of this study revealed that,
there is no well-established strategies that make Tax Auditors competent and efficient on their job
through training on continuous bases. As a result, proficiency and competency level of Tax Auditors’
was found at moderate levels. Concerning challenges
that influence the practices of Tax Audit; factors related with Traditions of Corruption, inflated
estimation of tax amount; not responding the compliance of Taxpayers on time; Taxpayers
consideration of illegal business practices as best way of doing business; and absences of
coordinated efforts among sector offices of the region engaged on Tax audit related responsibilities
were identified as the most sever challenges. Key recommendations of the study include: offering
training; assigning competent Tax Auditors, integrating sector offices’ efforts, developing and using
annual schedule of auditing for Taxpayers business firm, and arranging annual forum.

Key Wards: Tax, Tax Audit Practices, Tax Auditor, Tax Payer, and Tax Audit Challenges

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 Acknowledgements
First and foremost I would like to thank my research advisor Wollela Abehodie (PhD) for her
continuous advice and support throughout this process and completion of the thesis. I would like to
extend my thanks to officials, and officers of Oromia Revenue Authority Tax Auditors participated
in this study and Taxpayers who participated as respondents in this study; and who sacrifice their
valuable time and for their cooperation throughout the process of data collection for the study.

I would like to extend my thanks to Oromia Revenue Authority in providing me data and documents
required for this study. I would like to thank to Oromia Regional State Office of Auditor General
for materials and financial support made for my study.

My warmest gratitude is also extended to Mr. Bekele Tadesse and his family for their deep concern
and devotion of time in advising me and carefully going through draft manuscript of the research.
Particularly in editing the language and carrying out the quantitative analysis. My appreciation also
goes to my friends Sisay Belayneh, Amante Machalu, and Gizachew Mekuria, for their support and
encouragements during my study.

In closing, I would like to thank, more than words can do to my wife Tigist Abebe for her kind
assistance and encouraged throughout my education and initiated me to learn more. I thank you
again for taking family responsibility and keeping me motivated to achieve my study successfully.
Thank you Fanuel and Arsema Tesfaye too.

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 Acronyms and abbreviations

CA Chartered Accountant
DOR Department of Revenue
EC European Commission
ECC Ethiopian Chamber of Commerce
EFDRE Federal Democratic Republic of Ethiopia
ERCA Ethiopian Revenue and Customs Authority
EU European Union
GDP Gross Domestic product
IMF International Monetary Fund
IRS Internal Revenue Service
IT Information technology.
NBR National Board of Revenue
OECD Organization for Economic Co-operation and Development
ORA Oromia Revenue Authority
RAP Repetitive Audit Procedures
SIGTAS Standard Integrated Government Tax Administration System
SME Small and Medium Enterprises
UN United Nation
UNDP United Nations Development program
USA United States of America
VAT Value Added Tax
WB The World Bank

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 Table of Contents
Declaration......................................................................................................................................... ii
Statement of Certification................................................................................................................. iii
Approval of Board of Examiners .................................................................................................. iv
Abstract .............................................................................................................................................. v
Acknowledgements ......................................................................................................................... vi
Acronyms and abbreviations ........................................................................................................... vii
Table of Contents ........................................................................................................................... viii
List of Table ...................................................................................................................................... x
List of Figures ................................................................................................................................... xi
CHAPTER ONE ................................................................................................................................ 1
INTRODUCTION ............................................................................................................................. 1
1.1. Statement of the Problem .................................................................................................... 3
1.2. Broad objective and research questions .............................................................................. 4
1.3. Significance of the Study .................................................................................................... 5
1.4. Scope of the Study .............................................................................................................. 5
1.5. Limitation of the Study ....................................................................................................... 6
1.6. Structure of the Study Report ............................................................................................. 6
CHAPTER TWO ............................................................................................................................... 7
2. LITERATURE REVIEW ........................................................................................................... 7
2.1. Theoretical Review ............................................................................................................. 7
2.1.1. Major Activities of Tax Audit Program ...................................................................... 8
2.1.2. Types of Tax Audit ...................................................................................................... 9
2.1.3. The Effective Tax audit Program .............................................................................. 11
2.1.4. Audit Case Selection Methods .................................................................................. 13
2.1.5. Tax Audit Techniques ............................................................................................... 15
2.1.6. Audit Workforce Capabilities.................................................................................... 17
2.1.7. Challenges and Problems of Tax Audit ..................................................................... 19
2.2. Empirical Studies .............................................................................................................. 22
2.3. Conceptual Framework ..................................................................................................... 27
2.4. Conclusions and Knowledge Gap ..................................................................................... 28
CHAPTER THREE ......................................................................................................................... 30
3. RESEARCH METHODOLOGY ............................................................................................. 30
3.1. Research Objective and Research Questions .................................................................... 30
viii
 3.2. Research Approaches ........................................................................................................ 30
3.3. Research Methods Used .................................................................................................... 31
3.3.1. Quantitative Aspect of the Study ............................................................................... 32
3.3.2. Qualitative Aspect of the Study ................................................................................. 36
3.4. Conclusion and Link between Research Questions and Data Sources ............................. 37
CHAPTER FOUR ........................................................................................................................... 38
4. RESULTS AND DISCUSSION .................................................................................................. 38
4.1. Results ............................................................................................................................... 38
4.1.1. Survey Results ........................................................................................................... 38
4.1.2. In-depth Interview Results ........................................................................................ 58
4.2. Discussion ......................................................................................................................... 64
4.2.1. Tax Audit Practices ................................................................................................... 65
4.2.2. Tax Auditors’ Proficiency and Competency ............................................................. 72
4.2.3. Major Challenges of Tax Audit Practices ................................................................. 74
4.3. Concluding Remarks ......................................................................................................... 74
CHAPTER FIVE ............................................................................................................................. 76
5. CONCLUSIONS AND RECOMMENDATIONS .................................................................. 76
5.1. Conclusions ....................................................................................................................... 76
5.2. Recommendations ............................................................................................................. 78
5.3. Future Research Direction ................................................................................................ 80
References ....................................................................................................................................... 81
Appendices ...................................................................................................................................... 86
Appendix A: Questionnaire to be filled by Tax Auditors ............................................................ 87
Appendix B: Questionnaire to be Filled by Taxpayers (English) ................................................ 95
Appendix C: Questionnaire to be Filled by Taxpayers (Amharic) ............................................ 100
Appendix D: Interview Questions ............................................................................................. 106
Appendix E: Respondents’ View on the Ultimate goals of Tax Audit Program at ORA .......... 107
Appendix F: Major Activities Usually Performed by Tax Auditors during Tax Audit Period . 108
Appendix G: Major Challenges to the Practices of Tax Audit in Oromia Revenue Authority . 109
Appendix H: Responses of Tax Auditors on Tax audit Selection Criteria Usually Practices in
Oromia Revenue Authority ........................................................................................................ 111
Appendix I: Tax audit Techniques Usually Practiced in Oromia Revenue Authority .............. 112
Appendix J: Tax Auditors’ Self Evaluation Results on their Competency ............................... 113

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 List of Table
Table 3.1: Target Population, Sample Size, and Sampling Techniques ---------------------------34

Table 3.2: Link between research Questions and Data Collection Instruments------------------37

Table 4.1: Gender of the Respondents’ (%) -----------------------------------------------------------39

Table 4.2: Age Distribution of the Respondents’ (%) ----------------------------------------------39

Table 4.3: Educational Background of the Respondents --------------------------------------------40

Table 4.4: Experiences of the Respondents -----------------------------------------------------------40

Table 4.5: Job Position of the Respondents -----------------------------------------------------------41

Table 4.6: Respondents’ View on the Ultimate goals of Tax Audit Program at ORA ---------43

Table 4.7: Major Activities Usually Performed by Tax Auditors during Tax Audit Period ---44

Table 4.8: Types of Tax Audit Usually Practiced in Oromia Revenue Authority ---------------45

Table 4.9: Responses of Tax Auditors on Tax audit Selection Criteria Practices in ORA -----47

Table 4.10: Tax audit Techniques Usually Practiced in Oromia Revenue Authority: --------48

Table 4.11: Practices of Using Tax Audit Schedules/Timeframe for All Taxpayers -----------49

Table 4.12: Frequency of Tax Audit performed at Taxpayers Business Firms -----------------50

Table 4.13: Tax Auditors Responses for Items Related to Tax Audit Resources ---------------51

Table 4.14: Respondents Ratings on Overall Practices of Tax Audit in ORA -----------------52

Table 4.15: Training Offered for Tax Auditors Regarding Tax Audit Related Issues ----------54

Table 4.16: Tax Auditors’ Self Evaluation Results on their Competency -----------------------55

Table 4.17: Major Challenges to the Practices of Tax Audit in Oromia Revenue Authority --57

x
 List of Figures
Figure 2.1: Conceptual Framework of the Study -----------------------------------------------------27

Figure 4.1: Business Types of the Taxpayers (%) ----------------------------------------------------42

Figure 4.2: Tax Auditors’ Professional Qualification (Field of Studies) -------------------------53

Figure 4.6: Mode of Assignment of Tax Auditors' to Current Job Position ----------------------54

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 CHAPTER ONE
1. INTRODUCTION
A tax audit is an examination of whether a taxpayer has correctly assessed and reported their tax
liability and fulfilled other obligations. Tax audits are often more detailed and extensive than other
types of examination, such as general desk checks, compliance visits/ reviews or document attaching
programs (OECD 2006a).Taxation is one of the important elements in managing national income of
any country. It provides governments with the funds needed to invest in development, alleviate
poverty and deliver public services. Tax is a compulsory levy, imposed by government or other tax
raising body, on income, expenditure, or capital assets, for which the taxpayer receives nothing
specific in return (Lymer and Oats 2009). It involves every aspects of income generating activities
and consumption items, and requires not only administrative capacity of revenue authority but also
the involvement of private sectors through proper accounting and reporting systems (World Bank
2011).

However, usually tax is vulnerable for evasion and fraud, which has become the concern of many
countries. As Baurer (2005) noted, tax fraud is a deliberate misrepresenting or concealing the true
state of their affairs to the tax authorities to reduce their tax liability. It typically includes
underreporting profits, overstating deductions, underreporting employee wages, failure to register
or file tax declarations, hiding of taxable receipts coming from the production and distribution of
real products and services, and abuse of tax return through fictitious transactions and trades.

Thus, tax audit is needed to increase tax revenue and taxpayer compliance. Tax audit is a detailed
exploration into the activities of a taxpayer to determine whether he/she has been correctly declaring
the tax liabilities (OECD 2006a). Tax audit play a critical role in the administration of tax laws
through their detection of non-compliance and by serving as a deterrent to the wider population of
taxpayers who might otherwise engage in noncompliant behavior (Keen and Smith 2007). A Tax
Audit would serve to ensure that the books of accounts and other records are properly maintained;
faithfully reflect the income of the tax payer and claims for deduction correctly made by him/her;
help in checking fraudulent practices; and facilitate the administration of tax by a proper presentation
of accounts before the tax authorities and considerably saving the time of assessing officers in
carrying out routine verifications like checking correctness of totals and verifying whether purchases
and sales are properly vouched or not, thereby their time could be utilized for attending to more
important investigational aspects of the case (Reagan 2015).

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Since tax audit is an investigation into the background of tax returns submitted by an individual or
business to a tax agency, the idea of a tax audit normally conjures up feelings of anxiety even in
persons who believe their tax documents are perfectly in order. While it is true that a tax audit may
be called due to some perceived irregularity in one or more returns, it is also true that an audit may
be done simply as part of a random sampling (Alemu and Deressa 2009).

In Ethiopia, the modern tax system is a product of more than half a century of experimentation in
legislation and tax reform. Since its humble beginnings in the 1940s, the modern Ethiopian tax
system has developed and evolved by fits and starts as the needs for revenue arise, as governments
change and as the economy and international situations shift (Tadesse 2012, cited in Worku 2016).
Oromia Revenue Authority has been established by proclamation number 175/2005 of Caffe
Oromia. The Oromia Revenue Authority is authorized by the law to collect tax and to make an
assessment of the accuracy of declared tax liability by the taxpayers in respect to the stated tax laws
and regulations. Nowadays, Oromia Revenue Authority perform its function in the region at the
Head Office and branch offices found in 20 Zonal and 11 City Administrations found in Oromia
Regional State.

With regard to Tax Audit practices, a report on survey made on Oromia Revenue Authority’s branch
offices found at City Administration levels confirmed inefficient practices of Tax Audit in the
Region (ORA 2015). However, the issue of Tax Audit practices and challenges in the Region was
not obtained proper focuses by researchers. As far as the researcher’s knowledge is concerned, there
is no independent study carried out focusing on Head Office of Oromia Revenue Authority.

In the context of the above statements, the major objective of this study was to assess the practices
and challenges of tax audit in Oromia Revenue Authority with particular emphases on the types of
tax audit frequently performed; tax audit case selection methods used; audit techniques applied;
frequency of audit performed; adequacy of tax audit resources; and extent of tax auditors’
proficiency and competency.

The remaining discussion in this chapter is organized in six sections. The second section presents
the problem statement which is followed by Objectives of the Study in section three. Next to this,
Significance of the Study, Scope of the Study, Limitation of the Study, and Structure of the Study
Report were presented in subsequent sections from four to seven.

2
1.1. Statement of the Problem
Tax audit is an activity or a set of activities performed by tax auditors to determine at taxpayer’s
correct tax liabilities for a particular accounting or tax period, by examining a taxpayer’s
organization procedures and financial records in order to assess compliance to tax laws and verifying
the true, fair, reliable, and accuracy of tax returns, and financial statements (ERCA 2010).

Thus, Tax audit become a bridge that is believed to connect Taxpayers with the tax authority. And
it could also fill the gap by exposing tax evaders and teaching those that have knowledge gap on the
tax laws. Hence, existence of efficient and effective tax audit structure within a tax authority could
guarantee optimum tax collection and increased societal awareness towards the existing tax laws. In
order to meet this requirement, tax audit should be performed by highly skilled, knowledgeable and
committed auditors.

However, as noted by Ebrill et al. (2001), several developing countries do not yet have effective
audit programs due to: insufficient numbers of the required qualified and appropriately paid audit
practitioners, absence of a sound institutional audit practices, illegal cooperation between taxpayers
and auditors, lack of clear political support for the tax administration, and the deficiency of an
appropriate legal and judicial environment. Additionally, according to Hellenrstein (2005), those
countries have a tendency to offset weak tax audit by adopting complex procedures, such as
increased filing requirements and massive cross-checking. This, in turn, might result administrative
difficulties and increase the compliance cost of taxpayers.

In Ethiopia, a tax policy is geared towards promoting investment, supporting industrial

development; and broadening the tax base and decreasing the tax rate, at least maintaining the
current reduced tax rates compared to most other countries, in view of financing the ever-growing
needs of the government expenditure. Furthermore, the policy is designed towards discouraging
certain production and consumption activities, which had /and will have bad effects on health, moral,
economic and social settings of the community (ERCA 2010).

Based on those policy directions, as stated on Revenues and Customs Authority Establishment
Proclamation (No. 587/2008) of the country; government services in relation to tax and trade are
being rendered by a number of institutions problems regarding with the manner of service rendering,
keeping and utilization of information and promotion of law and order are being resulted. Similarly,
it has been issue of discussion among the public that the Oromia Revenue Authority has not been in

3
a position to carry out efficient Tax audit practices. As a result, it is argued that the mentioned poses
can create crucial challenges for the effective undertaking of tax audit by the authority.

Moreover, a report on Performance Assessment made on Oromia Revenue Authority branch offices
found at City Administration levels (ORA 2015), confirmed inefficient practices of Tax Audit in the
Region. The report revealed that, Tax Audits had not performed on time; tax related decisions are
not properly focused on legal frameworks; data and documents were not properly organized at
branch offices; implementing Tax Audit on scheduled bases was poorly practiced; there were no
clear criteria to select Tax audit case; resources required for Tax audit were no adequately fulfilled
at the branch offices of Oromia Revenue Authority found in City Administrations.

However, the issue of Tax Audit practices and challenges did not get proper focuses by researchers.
Particularly Tax Audit related issues were not studied at regional and local level of the Region. As
far as the researcher’s knowledge is concerned, there is no independent study carried out focusing
at Oromia Revenue Authority Head Office level.

These issues in relation to tax audit at the Oromia Revenue Authority together with the knowledge
gap established in the literature review in chapter two necessitated the conduct of this study.

1.2. Broad objective and research questions

The major objective of this study was to assess the practices and challenges of tax audit in Oromia
Revenue Authority Based on the above broad research objective the following specific research
questions were developed:

RQ 1. How is the tax audit practices in Oromia Revenue Authority with respect to:

 The types of tax audit frequently performed;

 Tax audit case selection methods used;
 Audit techniques applied;
 Frequency of audit performed; and
 The adequacy of tax audit resources?
RQ 2. What is the extent of tax auditors’ proficiency and competency?
RQ 3. What are the major challenges of tax audit practices in Oromia Revenue Authority?

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1.3. Significance of the Study
The primary use of this research is to the Oromia Revenue Authority. The authority might be able
to see its level and performance of tax audit activities, and learn some lessons and build some
corrective measures for the weaknesses based on recommendations to be forwarded.

Moreover, the study has paramount use for different stakeholders who are interested for such as
government agencies and business associations.

Furthermore, the findings of this study may add bits of information to the existing literature in the
areas of tax audit practices and may serve as additional source of information for those scholars
interested to conduct further research on the issue.

1.4. Scope of the Study

The issue of tax audit is broad and it encompasses a range of topics and issues that require
investigation at Federal, Regional, Local Administration levels. It will be more useful investigating
the issue at all levels of the country as it will provide a complete picture than what this study
contributed. However, this was beyond the capacity of the researcher due to various resource related
constraints.

Thus, to make the study specific and manageable; geographically, the scope of this study was
delimited to Oromia Regional State Revenue Authority: Head Office. Oromia Revenue Authority
was preferred as study area, because of the researcher’s affiliation to observe and get awareness
about practices and certain problems related to the practices of Tax Audit while he had been working
in the Regional State in the past recent years. In addition the contribution of Oromia Revenue
Authority in raising revenue as compared to other regions and also the size of the region at large
were incited the researcher to consider Oromia Regional State Revenue Authority as the object of
this study. Moreover, the Head Office of Oromia Revenue Authority is selected as a subject of the
study to properly manage the study using the limited resources within the scheduled timeframe.

Moreover, conceptually, this study was delimited to investigate the practices of tax audit at the
Region, particularly at Head Office level. In addition, this study will be delimited its scopes in
exploring the extent of tax auditors’ proficiency and competency. Moreover, the scope of this study
is delimited in identifying major challenges that affect the practices of tax audit in Oromia Revenue
Authority.

5
In general, the scope of this study was delimited to examine tax audit practices and challenges
focused on the type of tax audit performed, the effectiveness of audit program in terms of improving
voluntary compliance and tax revenue performance, audit coverage achieved, audit case selection
methods used, examination techniques applied, and availability of audit resources, proficient and
competency of tax auditors in particular.

1.5. Limitation of the Study

This study has faced some limitations; as the data was collected based on self-report of the
respondents which may be subjected to certain under or over reporting of some issues related to
topic of the study. There was also unwillingness of some respondents to correctly complete the
questionnaires. As a result out of 259 questionnaires distributed for respondents, 14 (5.41%) of them
did not correctly filled and return the questionnaire.

Besides, the researcher was confronted reluctance among Officials selected as interviewee to give
as much information as expected from them during the interview secession. Nevertheless, the
problems did not have significant impact on the results of the study, since the researcher tried to
triangulate the data from different angles.

1.6. Structure of the Study Report

This study is structured to have five chapters. The first chapter deals with introduction. The second
chapter presents review of the related literature. The third chapter concentrated on methodology of
the study. In the fourth chapter, the data collected for the study were organized and presented in
Tables and Graphs; followed by detailed analysis and discussions. Finally, the fifth chapter presents
conclusions and recommendations based on major findings of the study.

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 CHAPTER TWO

2. LITERATURE REVIEW
This chapter is organized in three sections. The first section reviews theoretical studies on tax audit
in a tax administration system while the second section presents the empirical evidence on tax audits
and related issues. The final section provides concluding remarks on the review of the literature and
identifies the knowledge gap that has been addressed in the study.

2.1. Theoretical Review

Audit is defined as the structured examination of business relevant commercial systems financial
and non-financial records, physical stock and other assets, internally generated data and that
produced independently of the business.

Tax audit is a critical and significant component of the compliance activities of tax administration
by means of proper use of enforcing tax laws; it is the conduct by audit staff for the appropriate
verification of selected taxpayer’s whether he/she has been correctly declaring the tax liabilities
including a review of taxpayer’s systems, books of account and other related information. It may
include crosschecks of taxpayer’s records with those of taxpayer’s supplier’s or with other
government departments and agencies source of information and its effectiveness and efficiency
must be guaranteed by means of proper procedures and application of modern audit tools and
techniques (OECD 2006a).

A tax audit is one of the most sensitive contacts between the tax payer and a revenue body, the
presence of an auditor in a taxpayer’s private dwelling or business premises, coupled with the
exploration of private and business issues and the gathering of information from taxpayer’s books
and records, or just the disruption of day-to-day work flow, represents a burden on the taxpayer
(OECD 2006b).

Most taxpayer’s report their tax liabilities more accurately if they believe that the tax administration
has the capacity to detect any unreported liabilities and that heavy penalty may be applied when they
are detected (Biber 2010). Thus, tax audit results in increased tax revenue in two ways: (1) directly
through assessment of additional taxes; and (2) indirectly by discouraging underreporting of
liabilities by all taxpayer’s. Further, Barreca and Ramachandran (2004) noted that the purpose of
tax audit is to check the evasion of tax and ensure compliance in accordance with the laws and
regulations.

7
The following subsections discuss thoroughly about tax audit in a tax administration system that
includes characteristics of effective audit program, types of tax audit to be performed, audit case
selection methods, examination techniques to be applied for tax audit, and characteristics and
required capabilities of effective tax auditors.

2.1.1. Major Activities of Tax Audit Program

As stated by SARFO (2015), the tax audit program of a revenue body carries out a number of roles
that are important and when effectively carried out can make a significant contribution to improved
administration of the tax system. Below are some of the roles:

 Promotion of voluntary compliance: The basic function of the audit program is to promote
voluntary compliance by taxpayers being abide by the tax laws. It tries to achieve this by
reminding taxpayers of the risks of non-compliance and also by instilling confidence in the
entire population that serious abuses of the tax law will be detected and sanctioned.
 Detection of non-compliance at the individual taxpayer level: If major risk areas are being
focused, audit may reveal major understatements of tax revenue which may be evaded by
individual taxpayers
 Gathering intelligence: Audits may unveil information on evasion and avoidance schemes
involving a number of taxpayers.
 Gathering information on the ‘health’ of the tax system: The results of normal audit activity
may provide information on the general well-being of the tax system. Audits conducted on
a random basis can assist overall revenue administration by gathering critical information
required to form judgments on overall levels of tax compliance, that over time can be used
to identify trends in overall organizational effectiveness and to gather more precise
information that can be used to inform decision-making on future compliance improvement
strategies, to refine automated risk-based case selection processes, and even support
changes to tax legislation.
 Educating taxpayers: Audits can assist to clarify the application of the law by every
taxpayer and to identify improvements required in book keeping and thus may contribute
to improved compliance by taxpayers in the future. Identify areas of the law that
require clarification: Audits may bring to light areas of the tax law that are causing confusion
and problems to large numbers of taxpayers and thus require further efforts by the
revenue body to clarify the laws’ requirements and/or to better educate taxpayers on what
they must do to comply into the future. Given the broad range of roles to be performed a

8
 revenue body’s audit program typically entails the largest allocation of a revenue body’s
total staff resources. From this perspective alone, the audit program represents a sizeable
strategic investment that dictates the need for sound management policies and practices.

2.1.2. Types of Tax Audit

Tax audits can vary in their scope and the level of intensity to which they are performed. The nature
of audits conducted should reflect the risks to be addressed and desired audit coverage of the
taxpayer population. Too many narrowly focused spot (issue) audit provides a high level of audit
coverage but at the expense of audit quality, tax revenue, and missed opportunities to properly detect
taxpayer’s noncompliance. On the other hand, audit activities with an excessive number of in-depth
examinations reduce the numbers of audits that might be conducted, possibly leading also to less
overall deterrent effect (OECD 2006a).

Therefore, it is inappropriate to carry out all audits on the basis of comprehensive examination of
documentation across all tax obligations and all periods that could be open for amendment. Such
approach waste resources targeting compliant taxpayers and limit the number of audits that can be
undertaken. Therefore, revenue bodies should aim to achieve a balanced program of audits that
considers audit coverage, audit quality, and overall deterrent considerations (Biber 2010).

As Ebrill et al. (2001), Grandcolas (2005), Harrison and Krelove (2005),and Biber (2010) noted, tax
audit program in a function based administration includes desk audit or verification, field audit,
registration check, advisory audit, record keeping audit, refund audit, issue-oriented audit,
comprehensive or full audit and fraud investigation. The following briefly reviews these tax audit
types.

a) Desk audit or verification: Desk or verification audit usually carried out annually and primarily
based on: (1) a review of income tax and VAT returns, or basic ratios comparing with previous
periods or other taxpayers in similar industries, and (2) the crosschecking of information
included in the taxpayer files. It involves basic checks conducted at the tax office when the
auditor is confident that all necessary information can be ascertained through in-office
examination. Information technology (IT) systems should provide strong support for these
verifications.
b) Field Audit: Field Audit is a detailed examination of taxpayer’s books and records to determine
whether the correct amounts were reported on the tax returns. The auditor may also obtain
information from other sources such as banks, creditors and suppliers, to confirm items on
returns. A field audit usually includes one or more of the following taxes: income, franchise,

9
 sales and use, withholding, and excise taxes. The audit is conducted at taxpayers place of
business, home, or at the office of their accountant, attorney, or other person who may represent
them. The auditor tries to select the place that is most appropriate under the circumstances and
most convenient for them.
c) Registration check: Registration check is form of unannounced visits to taxpayer’s premises
for new enterprises (mainly small and medium sized) to detect businesses operating outside the
tax system. As Ebrill et al. (2001) stated, during this visit, the tax officer ensures that the
taxpayer: (1) has a basic understanding of their obligations; (2) keeps appropriate records (book
keeping review should be mandatory in case of voluntary compliance when the turnover of the
taxpayer is below the registration threshold); and (3) issues proper invoices when required by
law. This type of visit is a quick check on businesses to establish that they are correctly
registered. It should not take more than half a day.
d) Advisory audits: It involves the auditor’s visit to newly established businesses. They advise
them regarding tax types, filing of returns, payment of amounts due, record keeping to be
maintained, refund claims, risk of audit and sanctions of noncompliance. These visits are very
appropriate when introducing new tax laws.
e) Record keeping audit: It is unannounced visits to the taxpayer’s business premises to check
whether the appropriate records are kept and VAT invoices are issued. The visit points out the
obligations of the taxpayer regarding the keeping of records and followed up with penalties if
the taxpayer continues to disregard record keeping requirements.
f) Refund audit: A pre-refund audit should be undertaken to verify the taxpayer’s entitlement to
a refund prior to processing a first refund claim particularly for new registrants. It is also carried
out where the refund claim varies significantly from established patterns and trends. Audits of
further claims should be carried out selectively. Refund audit should focus only on the period
covered by the claim.
g) Issue-oriented audit: It should focus on a single tax type and covers no more than one or two
reporting periods. Single-issue audits are confined to one item of potential noncompliance that
may be apparent from examination of a taxpayer’s return. Given their narrow scope, single-issue
audits typically take less time to conduct and can be used to review large numbers of taxpayers
involved in similar schemes to conceal noncompliance.
h) Comprehensive or full audit: All cases where serious underreporting or evasion has been
detected under any of other audits should be forwarded to a unit responsible for undertaking
comprehensive audits of all tax liabilities. It typically entails a comprehensive examination of

10
 all information relevant to the calculation of a taxpayer’s tax liability for a given period. This
audit may cover all tax obligations over a number of tax periods, or extended to several years up
to the limit provided for in the law. The objective is to determine the correct tax liability for a
tax return as a whole. As this audit is usually time consuming and costly to undertake, it should
only be applied to those taxpayers if there is an indication of under reporting that may impact
across taxes. It requires considerable resources and reduces the rate coverage of taxpayers that
could otherwise be achieved by a more varied mix of audit types.
i) Fraud investigation: It is criminal investigation that arises where the most serious cases of
noncompliance that have criminal implication- fraud, evasion, and criminal activity- are
detected. Such investigation requires special skill including meeting evidentiary requirements,
seizure of evidences or records, testimony from key witnesses and preparing briefs for courts.
Hence, it should be undertaken in accordance with criminal procedure laws. As OECD (2004a)
stated, tax authorities should maintain a dedicated organizational unit responsible for the
handling of serious cases of tax fraud or evasion.

2.1.3. The Effective Tax audit Program

The tax audit program provides visibility to the compliance and enforcement arm of the tax
administration (Thomson 2008). The auditing and spot-checking of records, coupled with a system
of adequate penalties for detected cases of fraud, is the universal method for tax control and the
prevention of tax evasion. Tax evasion can be brought to light only by a means of an effective audit
program. Tax audit also helps tax agencies to achieve revenue objectives that ensure the fiscal health
of the country and individual states. It derives voluntary compliance and generates additional tax
collections, both of which help tax agencies to reduce the tax gap between the taxes due and the
amount collected (Barreca and Ramachandran 2004).

Furthermore, a well-structured tax audit program can provide valuable support in gathering
information on the health of the tax system, educating taxpayers (improving future compliance), and
identifying areas of the tax law that require clarification. Accurate and timely self-assessment and
compliance with tax by taxpayers is achieved only through highly visible and effective audit
programs, including the consistent application of strong sanctions where noncompliance is
encountered. Taxpayers must feel that there is a good chance that unreported liabilities and other
forms of non-compliance have been detected during an audit (Biber 2010).

When an audit program is ineffective, it may result in the deterioration of tax compliance and a loss
of credibility of the tax administration. Taxpayers may not be deterred from minimizing their tax

11
liabilities if they believe that there is a little chance of being audited (Ebrill et al. 2001). This author
further noted that, there are several reasons for ineffective audit programs that are evident in varying
degrees in several countries. First, audit typically requires higher level of skills than those needed
for most other tax administration tasks, and such skills are sometimes in short supply. Second, the
possibility of collusion between taxpayers and tax officials is significant during an audit. Moreover,
auditor’s errors may damage business activity that makes governments reluctant to support
comprehensive audit programs. The development of an effective tax audit program typically
addresses coverage (percentage of taxpayers to be audited), selection of audit cases, methods (types
of audits to be performed, duration of audit, approaches taken by auditors), staffing and training
(staff resources needed to implement the audit program and the training provided for them), and
monitoring activities. A good audit program employs strategies to optimize both the direct and the
deterrent effects of audits. The first can be achieved by auditing a higher percentage of the large
taxpayers (Biber 2010). Although the frequency of audit is a contentious issue, the judgment is
always a delicate balance between the treat of audit to check the temptation to evade and the cost.
Where the tax system is fairly well established, audits of 15 percent to 20 percent of registered
traders a year are sufficient. However, it is not only the crude number of audits that is the most useful
measure of need (Tait 1988). In the case of VAT, Ebrill et al. (2001) stated that effective VAT audit
program should cover a 25 to 30 percent of the taxpayers each year. In addition, VAT audit need to
be closely coordinated with other tax liabilities especially income tax. Since most countries have
integrated VAT and income tax administrations, the development of an effective VAT audit program
significantly improves income tax compliance.

The deterrent effect is best achieved by extending the program to as many taxpayers as possible at
all levels (Tait 1988). Through adequate audit strategy, tax administrations must foster, and not
simply enforce, tax compliance. Tax compliance can be facilitated through improving services to
taxpayers by providing them with clear instructions, understandable forms, and assistance and
information as necessary. Monitoring compliance requires information systems as well as
appropriate procedures to detect non-compliance (EC 2006).

Voluntary compliance is generally enhanced by increasing the number of taxpayers audited than by
auditing fewer taxpayers with large tax potential. Perversely, revenue is increased by concentrating
on those taxpayers where a large amount of revenue is at risk. But there should be a careful planning
when there is a widespread belief that most tax returns are underreported, otherwise there may be
an over selection of returns for audit, with the result that the inventory of work in process may
increase to unmanageable proportions and make an orderly approach to an annual audit work plan

12
impossible (Tait 1988). Thus, the actual number of audits planned should depend on the audit
resources available to the program. The international standards as to the total staff assigned to audit
should be close to 40 percent of the total staff of the tax administrations (Biber 2010).

Further, audit capacities of field offices are determined by calculating the number of returns that can
be audited. The calculation made using estimates of the number of returns each tax auditor can
reasonably be expected to complete during a given audit period. There should be an over selection
of 25 percent to 30 percent of audit capacity (Tait 1988). With proper audit planning, strong
supervision, and effective use of the review staff as a training vehicle, it is not unreasonable to expect
an office auditor to complete an average of 10 to 20 cases a month, and for a field auditor (exclusive
of auditors dealing with controlled cases) to complete an average of 4 to 6 cases a month. Allocation
of about 200 cases a year should be reasonable for experienced junior auditors, who should be
eligible for advancement to senior auditor after four years of satisfactory service in that grade (Tait
1988). Therefore, planning an adequate audit strategy is a key success factor in post-fraud detection
(where audits are intended to detect tax evasion and fraudulent claims) as well as proactively
preventing tax frauds and evasions (Gupta and Nagadevara, undated). Biber (2010) noted that
effective planning is required to ensure that the audit program is adequately developed to: (1) focus
on and address the most significant risks; (2) target noncompliant taxpayers and not harass compliant
taxpayers; (3) make optimal use of limited resources, and (4) influence compliance across the
broader taxpayer community.

According to OECD (2006a), audit plan provides a path to follow to ensure that the audit is
performed effectively and efficiently. However, it should not be treated as set in stone once created.
Case planning must be a flexible tool and the original audit plan should be reviewed and updated
regularly during the course of the audit. Thus, characteristics of effective audit plans are:

 Flexibility to allow for unusual audit issues, adequacy of internal controls and the adequacy
of books and records;
 Alignment with any quality assurance framework; and
 A clear focus, with potential areas of concern noted during the preliminary review and audit
procedures selected that can address the concerns identified.

2.1.4. Audit Case Selection Methods

Compliance risk is the failure to comply with the tax law by taxpayers whether due to their
ignorance, carelessness, recklessness, deliberate evasion/weaknesses in tax administration itself, and
have been addressed only by enforcement through an audit-based approach (OECD 2004a).

13
However, tax administrations do not have sufficient resources to perform thorough on-site audits of
the activities of all taxpayers or comprehensive crosschecking of all invoices or transactions. Tax
administration, with limited resources and relatively large numbers of taxpayers to administer
(especially in the small and medium enterprises), must design the audit program to deploy audit
resources in a risk-based way with a view to achieve the most possible compliance and revenue
objective (Thomson 2008; and OECD 2004a).

Accordingly, the first key to successful audit is the case selection methodology. It is critical to select
audit candidates consistent with program objectives. Whatever the audit objectives have, the ability
to narrow the pasture of potential audit candidates is necessary to achieve program objectives and
optimal use of audit resources. Regardless of how automated and efficient the audit process, audit
effectiveness would not be realized under the selection of inappropriate audit candidates. Hence,
managing an effective auditing program involves decisions as to the selection of best audit case
strategy or combination of strategies. The selection strategies may vary by tax type. It may be based
on either reported tax amounts or the industry type (Barreca and Ramachandran, 2004).

According to Barreca and Ramachandran (2004), Audit selection methods range from simple
random selection to more complex rule-based selection, sophisticated statistical and data mining
techniques. Selection strategies can vary by tax type and even within a single type. The common
case selection methods include random selection of cases, screening or case review by auditors, rule
base and automated risk scoring systems, and data mining and statistical analysis.

Random selection

It has no bias in audit case selection, and useful to fight corruption. This method is perceived as fair
by taxpayers. However, it clearly not focused on highest risks, may have high opportunity cost if
used as sole case selection method (Vellutini, 2010). As Gupta (undated) noted, simple random
selection has a major drawback in that both honest and dishonest taxpayers are equally treated since
probability selection give equal chance of being selected for both. However, the criteria or
information based selection system too has a drawback in that it presupposes certain clue of
noncompliance, which may actually be sign of other things such as change in economic condition
in that particular trade (OECD, 2006a).

Screening or case review by auditors

It is the traditional method by which audit cases have been selected, and dates from the time when
there was little or no IT support, the data available was in any case limited, and the compliance risk

14
management techniques at a strategic level less well developed. Such a methodology has a benefit
that it makes full use of local knowledge, creates significantly less caseworkers resistance, can be
used to attack specifically defined risks and can be operated substantially without IT support (OECD
2004a and OECD 2004b). Manual selection of audit cases is based on the auditors own knowledge
of the taxpayers‟ behavior and environment. However, it cannot find out patterns of noncompliance
hidden in the history of noncompliance in the same area, sector, or as determined by other taxpayer
attributes. It also favors rent seeking and corruption in the tax administration since it is discretionary
and subjective approach (Vellutini, 2010).

According to OECD (2004a), the challenges inherent in relying on caseworker selection are: it relies
on a limited data set with no systematic cross reference to other data available within the
administration’s system; caseworkers regardless of their experience can miss aspects of
noncompliance with which they are non-familiar; those with the knowledge to undertake such
screening are usually those with the skills to undertake the substantive intervention. Thus, there is
an opportunity cost in asking them to undertake such screening. Modern standards of propriety
indicate that there should be a gap between those selecting cases and those functioning cases.

Data mining and statistical analysis

It is becoming increasingly common to base case selection methodologies on the results from
statistical analysis. As Barreca and Ramachandran (2004) stated, data mining is the exploration and
analysis of large quantities of data in order to discover meaningful patterns and rules. Organizations
use this information to detect existing fraud and noncompliance, and to prevent future occurrences.
The use of data mining techniques identifies patterns of noncompliance in the past and those
characteristics in the current population. It enables organizations to leverage their data to understand,
analyze, and predict noncompliant behavior.

However, data mining requires significant investments in IT both hardware and software, and it may
be difficult to acquire accurate data on which IT programs can operate. It is a difficult road to go
down when electronic infrastructure do not support such investments or the skills are not available
to the tax administration (OECD 2004a). They noted, statistical analysis is often used to examine
taxpayer data and to find the correlation between the data and non-compliance. It typically involves
using prior tax audits results, which are then analyzed in conjunction with taxpayer data.
2.1.5. Tax Audit Techniques

A tax auditor applies various techniques to examine the books and records behind a return. The
techniques to be used depend on the taxpayer and the tax regime concerned. As Biber (2010) noted,

15
an effective case plan can be cognizant of a range of investigative and analytical approaches that
may vary depending upon the area of risk and the circumstances of the particular taxpayer. The
decision regarding the type of tests to be undertaken as well as the records needed by the auditor to
address specific issues is influenced by the nature of the taxpayer’s operations, adequacy of books
and records, and materiality of potential adjustments. According to OECD (2006a), the techniques
used for audit examination purposes include analytical review, investigative approach, field
examination, record examination, and counterpart examination.

Analytical Review: An analytical review of financial statements and returns are often completed
during the preliminary stages of the audit. Ratios, such as gross profit and inventory turnover, are
used to test the accuracy of taxpayers‟ reported sales, cost of sales, or ending inventory. The unusual
variances (abnormal deviation of calculated ratios from the previous experience) are noted and
addressed during the interview with the taxpayer and additional audit procedures developed where
necessary (OECD, 2006a).

Investigative Approach: Auditors are encouraged to use an investigative approach in their audits.
Such an approach uses information obtained through observation, discussion, documents or records
obtained from either the taxpayer or other sources. It requires judgment, imagination and using
information outside the accounting records to perform the audit (OECD, 2006a).

Field Examination: This is utilized when information gathered on significant events such as
underhand trade, disguised transaction and other data concerning transactions. The examination also
include on sight survey of the current conditions of the taxpayer’s business through physical checks
of original transaction records and vouchers, assets and liabilities and other aspects of the business
(OECD, 2006a).

Record Examination: The main approaches to detect false accounting include the examination of
books and documents conducted at the taxpayer’s business office or branches, counterpart
examinations and examination of savings and deposit accounts (OECD, 2006b).

Counterpart Examination: It is an examination performed based on third party information where

warranted. OECD (2006a) stated, information can be obtained during the course of an audit from
third parties to verify the taxpayer’s income, for example: Financial institutions and public
companies information on interest and dividends matched with what taxpayers report in their tax
return, information from Government regarding social benefit payments, and employer information
concerning salary and wages paid and tax deducted, both for income and non-monetary benefits.

16
2.1.6. Audit Workforce Capabilities
As OECD (2006a) stated, revenue bodies must manage and develop their audit workforce to deliver
their planned outcomes through increasingly designing and implementing capability or competency
models. Capability or competency model refers to a formal specification of the skills, knowledge
and attributes of staff that are required to perform a specific job in an efficient and effective manner.
The model generally contains job descriptions, functional descriptions, and competency profiles
using task-related competencies. It is typically supported by training, exams, and educational
requirements to ensure and build capability. The model is used as a basis for managing performance,
training, staff development, and recruitment across the audit function.

Different capabilities are required for work performed in different market segments, or on clients
exhibiting different behaviors towards tax compliance. Typical points of difference are capabilities
required for noncompliant aggressive clients, audit work with large businesses (deeper and more
specialized knowledge about specific regulations is required for this segment), performing system
and electronic data base audits, and conducting criminal and fraud cases (OECD 2006b)

Required Capability

According to OECD (2006a) stated, the required capabilities of auditors are generally identified by
analyzing the activities required to perform particular audit tasks, and through practice and
experience. In addition to their primary role of detecting and deterring noncompliance, tax auditors
are often required to interpret complex tax laws and conduct intensive examinations of taxpayer’s
books and records. Hence, revenue bodies pay close attention to the overall management of the tax
audit function, and particularly to the strategies and methods used for recruiting, developing and
managing individual audit staff.

Thus, tax auditors should have a capability to: conduct investigations, determine compliance, tax
accounting and financial analysis, conduct research and analysis, make effective decisions under the
law, effective communication, apply work processes and procedures, and manage own work and
relationships (OECD, 2006b).

In addition to the required core capabilities, greater attention and emphasis is needed on soft skills
and other attributes. These include behavioral and motivational competencies, personal attributes
such as work and integrity, feeling for the detection of fraud and irregularities, observe and detect
relevant indicators in surroundings, identifies patterns and describes their significance to the
situation, and effective observational skills. Familiarity with basic accounting, bookkeeping, and
business and industry practices is also generally expected for all staff (OECD, 2006b).

17
Moreover, the required capabilities of audit managers and directors are typically identified based
on the notion of coaching, communication, and leadership skills. The required capabilities for audit
managers and directors often focused on leadership and management skills, technical expertise,
advanced audit skills, achievement orientation, ability to develop and coach others, high level
communication skills, and ability to make strategic decisions (OECD, 2006b).

Competency Assessment

It is important for tax administrations to assess and evaluate the competencies of their staff. The
direct manager commonly performs competency assessments during recruitment and promotional
processes on an annual or semiannual basis for those staff maintaining current positions (OECD,
2006a). Assessments performed as part of recruitment processes are often performed by external
specialists, human resource departments and/or panels of internal subject matter experts. Other
events triggering capability assessments include prior to performing a new type of work, prior to
starting a new role, and ongoing informal assessments and learning and development activities.

Assessment methods used include knowledge-based assessments administered online, formal tests
and exams to attain a recognized qualification, peer reviews, a tutor to support and assess newly
hired staff, and technical evaluations. The measurement and tracking process of the audit workforce
provides management with tangible information of the resource and capability mix or trends across
the whole audit workforce, providing valuable data for workforce and succession planning. Many
revenue bodies indirectly attain a measure of the competency level of their audit workforce by
considering: key performance indicators, quality assurance results, client or professionalism survey
results, quantity of audits performed, training course and other assessment results (OECD, 2006a).

Further, tax administrations may record the skills (including qualifications) and areas of expertise
of individual staff. Using and sharing this information across the organization, tax administrations
may better allocate work and identify specialist resources or skills (OECD, 2006b).

Improving Competency and Addressing Capability Gaps

Responsibility and accountability for improving auditors, audit managers and audit directors
commonly lies with the staff member in question and their direct manager and/or local management
team. Competency improvement should be integrated (not be seen as extra task) into normal
business activities. Together with tax auditing or training departments, human resource departments
(where applicable) often have joint responsibility and be significant contributors to the improvement
process (OECD, 2006a).

18
Revenue bodies may develop staff and address capability gaps through recruitment processes and
the use of programs such as training and development programs, mentoring and coaching programs,
accreditation models, job rotation and/or placement programs, career paths, knowledge sharing
initiatives and knowledge tests. Capability gaps are typically gathered from various sources
including performance system interviews and appraisals, client professionalism, satisfaction and
other similar surveys, and training program evaluations (OECD, 2006b).
Tax administrations must recruit audit staff specifically to carry out tax audits. To attract the right
staff in increasingly competitive and skilled labor markets, effective recruitment policies are
essential. Audit staff are generally recruited either fully trained so they can be effective in post very
quickly, or selected because they have strong potential to become auditors through in-house training
and education. A minimum standard of specific academic qualifications, such as a diploma or degree
or being a chartered accountant, is often required for some grades of audit staff. There is also an
assessment of applicants against competencies relevant to their audit work in the areas of problem
solving, analytical skills, interpersonal skills, self-management, decision making and oral and
written communications. Further, all auditors required to have computer skills with other more
specialized skills, such as legal experience or specific types of tax knowledge being needed for posts
that are more technical (OECD, 2006a).
In order to maintain standards of auditing it is essential that auditors are given both initial training
(classroom and on-the-job instruction) to bring auditors up to the required level, and continued
training so that their skills are kept up to date and relevant. The extent and nature of this training
and the balance between the two varies according to need, and relates to the recruitment and
development policies adopted. Initial training varies depending on the level of qualifications and
experience expected of new recruits. For instance, recruit staff without professional qualifications
need much more extensive initial training in tax law and auditing, in-house testing is generally used
to confirm that trainees reach the required standard (OECD. 2006a).
To deliver ongoing training and development, a number of methods are used including training
courses, computer based training packages, memos, guidance notes, self-study packs, facilitated
workshops and discussion forums, on-the-job training, coaching and mentoring, and virtual
university and learning tools. As a rule, continuing professional training is not normally examinable
and the amount of training undertaken varies between countries and over time (OECD, 2006a).
2.1.7. Challenges and Problems of Tax Audit
Over the past decades many developing countries have implemented comprehensive reforms of their
tax administrations in order to increase revenue and curb corruption. The rapid growth in the size

19
and form of business conducted over the internet and other communication networks, has raised a
number of concerns for the formulation of tax policy and effectiveness of existing administrative
procedures and techniques. These reduce the tax man’s ability to check the accuracy of profits
reported by taxpayers and narrow the tax base. Bird (2003), mentioned schemes for tax avoidance,
irregular flow of resources taxation of the informal sector and the inability to establish the ‘tax
court’; as challenges to increased revenue collection. Poor performance to tax group is due to
problems with taxpayer identification, illiteracy and poor record keeping and sometimes, willful
intention of these potential taxpayers to evade tax.

Another challenge was associated with lack of taxpaying culture among taxpayers, which was partly
caused by a tax system perceived as unfair. Relative’s high rates and a complex and partly incoherent
set of rules, especially for customs and corporate taxes resulted in large potential rewards for
taxpayers willing to bribe to cut their own tax burden and/or speed up customs clearance of their
goods (Fjeldstad, 2006).

While tax laws impose obligations on taxpayers to contribute to government revenues, the actual
amount of revenues flowing into the hands of any government depends on the effectiveness of its
revenue administration and Tax audit practices (Bird, 2003). Weakness in revenue collections leads
to inadequate tax collections. For a number of reasons, efficient tax administration is a major
problem in developing countries. Not only do developing governments face an uphill battle in
bringing individuals and businesses into the taxation process, but governments face insufficient
administrative staff with no skills, high levels of illiteracy among taxpayers and tax collectors, lack
of sufficient computer and facilities, and lack of reliable statistical data (Kangave, 2005).

A major constraint in tax administration is the lack of adequate resources to sustain and facilitate
the operation of tax authorities. Resources to administer a tax can generally be divided into two
categories: human resources and physical resources. Human resources include not only the number
of tax officials but also the quality of tax officials. Physical resources cover a wider dimension,
ranging from office buildings and office equipment to vehicles and communication systems (Tanzi
and Zee, 2000). These are the resources required by the human resources in order to ensure
compliance with tax laws.

The problem of inexperienced and unqualified personnel is worsened by lack of adequate training
facilities and opportunities. Most training undertaken in developing countries is general in nature,
and certainly does not correspond with the particular reform strategies that are being undertaken by

20
tax authorities. Lack of modern technology, especially computers, to facilitate the taxation process
is another impediment to effective tax administration (Bird, 2003).

Besides, according to Kitillya (2011), tax audit challenges are classified in to three categories. The
first was Tax Administration Challenges - which includes raising revenue to GDP ratio; broadening
the Tax Base; Changing of Staff mindset and Staff Integrity; Overreliance on International Trade
Taxes; Auditing of Specialized Sectors; and Tax Evasion. The second challenges were focused on
Tax Policy Reforms which emphasize on addressing Tax Incentives and Exemptions. And the third
challenges were related to External Factor Beyond TRA Control which includes: Power availability
and Stability; absence of National Identity Card; absence of Bio-data; Physical Location of Business
Entities; Internally Robust Integrated Operational Systems; and Externally Poor ICT Backbone.

On the other hands Toto (2011) identified Resource and capacity, Inter-agency coordination,
Compliance management, Corruption, and Sustained political will as the major challenges of Tax
Audit and Tax administration in most developing countries. Moreover, inadequate resources are
impacting taxpayer service delivery and adequacy, and appropriateness of compliance interventions.
Ensuring appropriate resources to revenue administration is a longstanding battle. Developing
country revenue administrations often under resourced-adequate resource assurance an imperative.
Existing resources need to be carefully used to obtain the highest return. Mid-level managerial and
technical skills need continuous/sustained improvement. Skills necessary to identify tax gaps,
compliance trends and improvements need to be systemically built.

Another problem was related to Inter-agency Coordination. Still weak between domestic tax and
customs administrations and opportunities are underexploited. Trend analysis by customs and tax
managers can lead to development of harmonized compliance models and response strategies. It
needs to go beyond just revenue agencies, several government supervisory bodies, financial sector,
etc. Experience in many countries suggests that one of the most effective means to improve the
equitable and efficient collection of revenue is improve information sharing between agencies. The
simple ability to cross reference tax filings across agencies has the potential to more general level,
the challenge of tax collection is fundamentally about informational and the ability to draw on
multiple information sources to identify taxpayers and their actual tax liability. Thus, being able to
draw on information from, among others, all concerned organs and Ministerial Offices holds huge
potential for improving tax collection through greater knowledge of the assets and activities of
taxpayers. Yet these forms of information sharing remain far too limited, owing to bureaucratic

21
infighting, and an overall absence of top level managers will to bring the assets of high net worth
individuals more clearly into the public eye (Kitillya, 2011).

Furthermore a problem of Tax Audit was associated with Compliance Management. Improvement
is required to strengthen the legitimacy of the tax system beyond the fundamentals. Clear strategies
required to address the most noncompliant businesses and individuals. Key compliance management
strategies, comprising: Understanding the nature of the taxpayer/trader population, identifying key
compliance risks and how they arise, Clarity on accountability, and adequate resourcing of
compliance actions, and specifying performance indicators and potential corrective actions. No
short-cuts to addressing non-compliance, hard routine administration work is required—
fundamental (Tanzi and Zee, 2000).

Corruption is also another factor that hinder the success of Tax Audit practices. Progress can and
should be made in addressing this vice. Critical to understand the causes and ethical dilemmas.
Strong institutional measures to address ethical dilemma and misbehavior-code of ethics, internal
audit, staff investigations, and prosecution. Simplification and transparency of procedures play a
key role in minimizing rent-seeking opportunities - limit contact between taxpayers and tax officials.
Firm managerial leadership is crucial. Political decision at the highest level is essential.
Moreover sustained political will is a significant factor for the successful practices of Tax Audit at
any level of a Nation. Key condition to complement technical capacity: Political commitment must
come from the highest levels of the country’s leadership and should be consistent, unwavering, and
sustainable. Substantial progress where this will has been forthcoming, but minimal where it has
not. A holistic approach is essential - gains from administrative improvements can easily be offset
by base-narrowing exemptions.

According to OECD (2004a), some challenges of tax audit are relying on caseworker selection.
Those can relies on a limited data set with no systematic cross reference to other data available
within the administration’s system; caseworkers regardless of their experience can miss aspects of
noncompliance with which they are non-familiar; those with the knowledge to undertake such
screening are usually those with the skills to undertake the substantive intervention. Thus, there is
an opportunity cost in asking them to undertake such screening. Modern standards of propriety
indicate that there should be a gap between those selecting cases and those functioning cases.

2.2. Empirical Studies

Regarding empirical evidences on Tax Audit the researcher comes across different researches
carried out at specify organization and federal levels of the country. Among them, those researches

22
conducted in recent time includes a study conducted by Gebeyehu (2008), Getaneh (2011), Netsanet
(2014) and Atisbha (2016).

However, the objectives and scopes of study for all of them were not the same. The study conducted
by Gebeyehu (2008) was attempted to trace out the basic concepts of tax audit, and analyze the
significances and role of tax audit in increasing tax revenue and in strengthening tax administration
capacity. The results of the study indicated that, the highest ratio of tax to GDP in Ethiopia was 13
percent, which is registered in 2003/04. Most of the country’s revenue is from non-tax sources such
as grants. Revenue derived from taxes is dominated by indirect taxes. The study stated that personal
income tax does not need critical assessment other than checking whether the amount withhold by
the employer is forwarded to the respective tax authority. Whereas, business profit tax needs much
effort to levy and collect due to the high-risk of understatement and evasion since most taxpayers
use all mechanisms that could understate their tax liability. So far, there is no field audit although
the problem of tax evasion bothers revenue agencies at different levels.

Moreover, Getaneh (2011) focused on key problems in tax audit operation regarding the
appropriateness of audit type used, audit rate, aptness of audit case selection methods, audit
examination techniques used, and the experience and capability of audit staff resources at Federal
Government level. The result of the study indicates that, tax audit program remains undeveloped
with slight range of tax audit activities performed targeting aptly specific risks. Further, low audit
coverage, absence of compliance risk-based audit case selection strategy, scarcity of audit resources,
and absence of proficient and experienced tax auditors are revealed as major problems in this study.

Furthermore, the focus of the study conducted by Netsanet (2014) was on the Revenue Authority of
Hawassa City Administration to examine whether the practice is in conformity with the standards.
The study utilized interview and questionnaire to collect data required for the study. However, it has
been difficult for the researcher to collect secondary data due to bad documentation of the authority
and reluctance of its employees to cooperate with the researcher. The results of the study indicate
that, Revenue Authority of Hawassa City Administration extensively use comprehensive types of
audit. Due to this the audit coverage of the revenue authority was too low, cases were selected based
on associated risk but not used the standard risk identification criteria. The Authority does not
perform the audit work in predetermined time. The study concludes that, the revenue authority had
not performing tax audit according to acceptable Tax Audit standards.

Besides, a study made by Atisbha (2016) focused on tax audit practice and its challenges at Ethiopian
revenue and customs authority with specific reference to large Taxpayers’ office. Its objectives were

23
intended to assess the challenges in the application of tax audit in the large taxpayers; to explore
how tax audit is exercised in the reduction of tax avoidance and evasion; and to examine the
competency of tax auditors’ of Ethiopian revenue and customs authority. The principal finding of
this study was that declared income increased significantly more in rational audit strategy group
than in the control group. The results of the study indicate strongly that information concerning the
use of rational audit strategies is superior to information concerning random audits, and that audit
information, in general, is superior to no information. The information concerning the rational audit
strategy reduces tax fraud compared to no information. According to this study, tax audits have an
indirect deterred effect by which rational taxpayers adapt their behavior to the expected degree of
auditing if they are made aware that they may be audited. The study further identified that, tax audit
practices in the authority had problems in the application of information technology /SIGTAS/ to its
maximum capacities, incompetent auditors to tackle tax evasion and avoidance, weak taxpayers’
education program which cannot improve the compliance level of taxpayers.

Among study conducted at global level, Bright et al. (1988) studied statistical sampling for tax audits
in United States of America. The study tried to review whether the use of statistical sampling for
audit is a sufficient basis for determining the taxpayer’s unpaid liability rather than reviewing all
transactions to determine the exact amount of tax owed. The study relied on the cases and data from
consumption taxes, primarily sales and use taxes. The universe-documented transactions available
for audit are used as a sample frame. The finding of the study indicated that audit assessment based
on appropriately drawn and analyzed statistical sample do not suffer from the defects that the courts
have correctly concluded mar assessments based on non-statistical samples. The study further
indicated that sampling techniques allow improved economies in the use of government resources
in that tax administration can be more efficient, fairer, and less intrusive if the technologies used for
identifying and measuring tax deficiencies are expanded to include controlled use of statistical
sampling. However, statistical sampling cannot provide an exact determination of tax owed, and the
uncertainty adjustment may sacrifice too much revenue.

Yet another study was conducted by Smith and Stalans (1994) in USA, on negotiating strategies
preferred by taxpayers and auditors for dealing with tax audit disputes. The study adopted a pre-
audit open-ended interview conducted with a randomly selected sample of taxpayers and state tax
auditors that drawn from four field offices of the Oregon Department of Revenue. The results of this
study revealed that the strategic preferences of both taxpayers and auditors is influenced by the
nature of the dispute, general taxpayers attitudes toward taxpaying and tax administration, the
difference in formal power, and the perceived role obligations of auditors. As the study results

24
showed, tax auditors are more likely to include holding firm as one of their strategic choices.
Whereas taxpayers who has an objective to minimize the time and effort they devote to the audit are
more likely to prefer the cooperative strategies, but those taxpayers who believe that they can
influence the decision making of the auditor are more likely to prefer the assertive strategies. The
study further indicated that taxpayers who support taking advantage of loopholes and ambiguities in
the tax law tend to prefer the assertive strategies, and those who want to minimize their involvement
are more likely to prefer cooperative strategies.

Furthermore, there was another study conducted in USA by Rhoades (1999) on the impact of
multiple components reporting on tax compliance and audit strategies. The study modeled taxpayer
compliance behavior and tax authority audit strategies within the context of a multidimensional
report of taxable income, and analyzed the impact of component reporting requirements on taxpayer
incentives to misstate the tax liability. The results of the study revealed that the impact of multi-
component reporting requirements on specific taxpayers depends critically on their evasion
opportunity set. The study stated that taxpayers with multiple evasion opportunities made
misstatement across income components to minimize both the direct and indirect effects of detection
whereas those with limited evasion opportunities pursued them less aggressively in the multi-
component model.

Besides, Chan and Mo (2000) studied the effect of tax-holidays on foreign investors’ tax
noncompliance behavior in the China’s developing economy. The empirical results of the study
indicated that a company’s tax-holiday position affects noncompliance. Companies are least
compliant during the pre-holiday period whereas most compliant during the tax exemption period.
The study further indicated that domestic market oriented companies, service companies, and joint
ventures are less compliant than export oriented companies, manufacturing companies, and wholly
foreign-owned enterprises respectively.

Likewise, Sen and Bala (2002) studied income tax audit operation in Bangladesh. The objective of
the study was to conceptualize the term tax audit conducted by professional chartered accountants,
and to give an overview of the prevailing tax scenario and the operations of income tax audit. The
results of the study confirmed that Bangladesh is unable to raise enough resources through taxes.
The study also revealed that income tax audit is conducted both in mandatory and discretionary
manner although the extent of income tax audit practice is awfully inadequate. The major reasons
identified in the study were unawareness and undesirability of most assesses, and the hesitation of
chartered accountant firms to take up the task of tax audit. The hesitation of chartered accountant

25
firms is because the sensitivity of the tax audit task spreads not only in the relevant year, but also in
the future years until the finalization of the audit. Moreover, they often reluctant to perform the audit
of tax basis accounting due to inadequacy of information, lack of efficient personnel, absence of
audit continuity over the years, and want of logistic supports to maintain track record of information
for future reference in tax cases.
Arachi and Santoro (2007) also studied the use of tax audit strategy as enforcement for small and
medium enterprises in Italy. The study focused on a major innovation in the field of tax auditing of
self-employed workers and small firms. The main finding of the study was that tax enforcement for
SMEs is always challenging since they usually operate on the border between the formal and the
shadow economy. The study further showed that the distribution of firm size affects the optimal tax
enforcement policy in two ways. First, there can be a relationship between firm size and the
propensity to evade or to avoid taxes. Second, the costs and returns of tax auditing may depend on
firm size. The study also argued that business sector analysis might be a valuable policy tool for
developing countries, which have a large shadow economy and a high share of microenterprises.
Moreover, the findings of a study conducted on Taxation and Tax Audit Challenges across 58
developing countries (Carnahan, 2015), revenue systems in some developing countries have
fundamental shortcomings. Besides, the increasing globalization of economic activity adds a further
layer of complexity that developing countries need to manage in building and maintaining their
revenue systems.
Similarly, a study conducted in Gombe state of Nigeria by Gurama (2015), with the main objective
to examine the problems and prospect of Tax Audit and internal revenue services; also identified
tax audit problems related to poor staffing, lack of facilities, poor record keeping and poor conducive
environment. The findings shows that insufficient public awareness, lack of training, poor working
condition, poor remuneration and lack of motivational incentives are among the issues lead to low
tax generation.
Generally as discussed above, all of the studies were attempted to assess Tax Audit focusing on the
significance of Tax audit practice in increasing revenue, and issues of Tax audit related to large
taxpayersat National level. All of them were not focused on practices and challenges of Tax audit
performed at Head Office level of the Region.
They attempted to assess the issues of Tax audit with variable and aspects of increasing revenue,
strengthening tax administration capacity, challenges in the application of tax audit in the large
taxpayers, reduction of tax avoidance and evasion, ability of tax auditors, and Tax audit operation
at Federal and City Administration levels. These showed that, there is a research gap, on the topic

26
of practices and challenges of Tax audit particularly at Head Office level of Oromia Regional
State.In addition, the scopes of the study for all of them were not the same with this study. Therefore,
this study is carried-out where such study has not been sufficiently conducted on the area and the
study topic.

2.3. Conceptual Framework

A conceptual framework is a structure of concepts and theories which are put together as a map for
the study and it shows the relationship of research variables (Kothari, 2004). The framework is
usually used to explain the relationship between the independent variables and the dependent
variables of the study.

The Practices of Extent of tax auditors’

tax audit in proficiency and
ORA competency

Major Components of Tax Audit Practices

 The types of tax audit frequently performed
 Tax audit case selection methods used
 Audit techniques applied
 Frequency of audit performed
 The adequacy of tax audit resources

Major Challenges of tax audit Practices

Figure 2.1: Conceptual Framework of the Study
Source: Compiled from extensive review of the related literature by researcher

27
In this study, basically the practices of tax audit are considered as the major variable under
investigation. It begins investigating how the tax audit are practiced in Oromia Revenue Authority
with respect to: the types of tax audit frequently performed; Tax audit case selection methods used;
Audit techniques applied; Frequency of audit performed; and The adequacy of tax audit resources.
Next to this, the extent of tax auditors’ proficiency and competency were assessed in terms of
qualification, experiences, work accomplishments and behaviors.

Moreover, challenges of tax audit practices at the Authority were considered as factors influencing
the success of its objectives. In order to analysis those major challenges the focus was made on
issues like: Traditions of Corruption; Inflated estimation of tax and unfair volume of tax among
similar businesses in the same proximity; Not properly responding the compliance of Taxpayers on
time; Taxpayers were consider illegal business practices as best way of doing business; Absences
of reliable and up-to-date data and records keeping practices among Taxpayers; Absences of
Coordinated efforts among sector offices of the region engaged on Tax audit related responsibilities
and others.

In general, based on the theoretical literature, conceptual framework of the study was developed as
demonstrated in Figure 2.1.

2.4. Conclusions and Knowledge Gap

Tax audit practice is a current issue for both developing and developed countries. In the theoretical
review, to the knowledge of the researcher, there is no standard as to the percentage of audit
methodologies to be conducted in a given tax authority. In addition, there is no adequate literature
regarding the appropriate audit examination techniques to be used for checking the accuracy of tax
returns in line with the level of economy and technological advancement.
The empirical studies that have been reviewed in the preceding section (like study conducted by
Gebeyehu, 2008; Getaneh, 2011; Netsanet, 2014; and Atisbha, 2016) focused on the different audit
strategies that affect tax compliance behavior, income tax in particular, and the use of sampling tax
audit strategy for improving the tax audit coverage. In addition, most prior studies regarding tax
audit issues tried to examine the possible audit strategies including the use of audit information for
the purpose of compliance improvement and fraud detection, and the impact of component reporting
requirements on taxpayer incentives to misstate the tax liability.

However, as far as the knowledge of the researcher is concerned, it is possible to conclude that
although there have been some studies on tax audit related issues both in developed and developing
countries, Ethiopia in particular, the studies did not explore challenges in tax audit thoroughly

28
though some has been said about the practices. Most of those studies had made a little effort to
address on issues related to practices, challenges of tax audit, and major issues that focus on
competences of tax auditors has not been well elaborated.
Based on these gaps in the literature together with the problems stated in section one of chapter one,
and in order to attain major objective of the study, the following research questions will be
addressed: How tax audit are practices in Oromia Revenue Authority with respect to: the types of
tax audit frequently performed; Tax audit case selection methods used; Audit techniques applied;
frequency of audit performed; and the adequacy of tax audit resources. Furthermore questions that
associated with extent of tax auditors’ proficiency and competency; and major challenges of tax
audit practices in Oromia Revenue Authority will be raised.
With this end, the next chapter discusses research methodology and specific research methods that
are applied for the study along with proper justification for the selection of appropriate samples and
data collection instruments.

29
 CHAPTER THREE

3. RESEARCH METHODOLOGY
This chapter presented research design that was used for this study. The chapter was organized in
four sections. In the first section (3.1), research objective and basic research questions are presented
as a means to connect the research questions to the particular research methodology adopted for this
study. In the second section (3.2), different research approaches available to a researcher in general
were discussed. Then in the third section (3.3), research methods used; which includes such things
like approaches and strategy of inquiry used; with proper justification for adopting a certain method
was explained. Finally, in the fourth section (3.4), summary of the link between research questions
and data sources including conclusions of the chapter were presented.

3.1. Research Objective and Research Questions

The main objective of this study was to assess the practices and challenges of tax audit in Oromia
Revenue Authority with particular emphases on the types of tax audit frequently performed; tax
audit case selection methods used; audit techniques applied; frequency of audit performed; adequacy
of tax audit resources; and extent of tax auditors’ proficiency and competency.

Based on the above research objective the following specific research questions were developed:

RQ 1. How is the tax audit practices in Oromia Revenue Authority; with respect to:

 The types of tax audit frequently performed;

 Tax audit case selection methods used;
 Audit techniques applied;
 Frequency of audit performed; and
 The adequacy of tax audit resources?
RQ 2. What is the extent of tax auditors’ proficiency and competency?
RQ 3. What are the major challenges of tax audit practices in Oromia Revenue Authority?

In order to attain objective of the study and properly respond the research questions, appropriate
research approaches were adopted as discussed in the subsequent sections of the chapter.

3.2. Research Approaches

Research approach could be qualitative, quantitative or mixed depending on the nature of the study.
Qualitative research approach explores attitudes, behaviors and experiences (Dawson 2002). The
researcher collects open-ended emerging data with the primary intent of developing themes from

30
the data (Creswell 2007). Apart from this, it facilitates responses, and provides data in-depth with
leading respondents (Dawson 2002). It is capable to generate a theory by addressing issues which
cannot be quantified.

Therefore, the purpose of the qualitative aspect of this study is to deeply understand tax audit
practices and challenges at the Oromia Revenue Authority. Thus, considering the advantages of its
flexibility in which new questions could be forwarded during the interview session, semi-structured
questions were prepared and used for this study. The qualitative data that were obtained from
interview responses were presented and narrated in separated section of Chapter Four after the
analysis of quantitative data illustrated in tables and graphs.

On the other hands, quantitative research generates statistical data through the use of large scale
survey research, using methods such as close-ended questionnaires and/or structured interviews
(Dawson, 2002). Moreover, Creswell (2009) noted that quantitative approach employs strategies of
inquiry such as experiments and surveys, and collect data on predetermined instruments that yield
numeric data that can be analyzed using statistical procedures. Once the survey data have been
collected, they were then analyzed so that the causal connection specified by the hypothesis or
research questions can be verified or answered (Scott and Morrison, 2006). Thus, it is a means for
testing objective theories through examining the relationship among variables. It minimizes bias
from the researcher’s influence and employs large sample size. Though, the results can be believed
on and the results can be generalized to larger population. So that, it may has limited scope.

Mixed approach is the blend of both qualitative and quantitative approaches. It employs strategies
of inquiry that involves collecting data either simultaneously or sequentially to best understand the
research problem. The data collection involves gathering both numeric information and text
information (Creswell, 2009). Mixed approach includes the use of theory deductively in theory
testing and verification, or inductively in an emerging theory or pattern. Therefore, the combination
provides an expanded understanding of the research problems. It utilizes the strengths and
overcomes the weaknesses of the two continuum approaches.

3.3. Research Methods Used

In order to correctly respond the research questions stated in the previous section, the researcher
used both qualitative and quantitative approach (mixed approach) in collecting and analyzing data
as discussed in the following section. Thus, since the purpose of this study was to investigate
practices and challenges of tax audit at Head Office of Oromia Revenue Authority, the study was
designed to implement mixed approach using qualitative and quantitative data.

31
In this regards, as described by Kothari (2004), the design of a study using mixed approach involves
the use of qualitative and quantitative approaches, and the mixing of both approaches in a study.
Using mixed approach is more than simply collecting and analyzing both kinds of data; it
involves the use of both approaches in tandem so that the overall strength of the study is greater
than either qualitative or quantitative research. In mixed approach, the researcher bases the inquiry
on the assumption that collecting diverse types of data best provides an understanding of a research
problem.

Thus, this study was applied mixed approach to describe and evaluate the practices and challenges
of tax audit in the study area. The applications of both approaches enable the researcher to obtain
adequate, relevant and reliable data to the issue understudy.

3.3.1. Quantitative Aspect of the Study

A Quantitative research is based on the measurement of quantity or amount. It is applicable to

phenomena that can be expressed in terms of quantity. Such approach involves the generation of
data in measureable form which can be subjected to rigorous quantitative analysis in a formal and
rigid fashion (Kothari, 2004).

In a quantitative research, the problem is best addressed by understanding what factors or variables
influence an outcome. In addition, the researchers sometimes advance a theory to test, and they
will incorporate substantial reviews of the literature to identify research questions that need to be
answered. A quantitative research may be written from the impersonal point of view and in the past
tense, to convey objectivity (Creswell, 2009).

The focus of quantitative research is up on patterns, regularities, causes and consequences in which
there is an application of the principles of positivism, that the patterns of the social world have their
own 'real 'existence. Survey design is a means of gathering information, usually through self-report
using questionnaires or interviews. Its purpose is to generalize from a sample to a population so that
inferences can be made and it is also economical and rapid turnaround in data collection. In general,
survey design was used to make inference from sample to the population.

This survey conducted by means of self-administered questionnaire which would be distributed to

the Tax payers and Tax Auditors of Oromia Revenue Authority. The responses of those respondents
help to understand the Practices and Challenges of Tax Audit at head office of the Authority.

32
3.3.1.1. Sampling Design

According to the data obtained from Head Office of Oromia Revenue Authority (April, 2017), there
are about 33 Tax Auditors and 547 Taxpayers under the supervision of the Head Office. Therefore,
the major target population of this study were those Tax Auditors working in Oromia Revenue
Authority and the Taxpayers who pay a tax at the Head Office level of Oromia Revenue Authority
during 2016/17 fiscal year.

Sample design is a definite plan for obtaining a sample from a given population. Conducting a study
on the complete enumeration of all population or census survey is difficult to cover due to different
constraints especially if the inquiry is large (Cohen et al., 2007). In sampling analysis, if the sample
size is too small, it may not serve to achieve the objectives and if it is too large, we may incur huge
cost and waste resources. As a general rule, one can say that the sample must be of an optimum size
i.e., it should neither be excessively large nor too small.

Therefore, in order to proportionally include appropriate number of Taxpayers, the sample size were
determined using the following formula developed by Kothari (2004:179).
𝑍2 ∗ 𝑝 ∗ 𝑞 ∗ 𝑁
𝑛= 2
(𝑒 (𝑁 − 1)) + ( 𝑍 2 ∗ 𝑝 ∗ 𝑞)
Where:
n= required sample size
Z2 = is the abscissa of the normal curve that cuts off an area α at the tails (1- α equals the desired
confidence level. The value for Z is found in statistical tables which contain the area under the
normal curve. e.g., Z=1.96 at 95% confidence level; and Z2=3.841).
N= the population size (N=547)
P= the population proportion (assumed to be 0.5, this would provide the maximum sample size)
e = is the desired level of precision or margin of error (5% error or 0.05)
q= 1-P

Thus;
(3.841 ∗ 0.5) ∗ (1 − 0.5) ∗ 547
n= = 225.892
((0.052 ) ∗ (547 − 1)) + (3.841 ∗ 0.5) ∗ (1 − 0.5))

Accordingly, among 547 Taxpayers of the Authority found at Head Office level, 226 of them were
identified as a sample size to respond to the questionnaire, as illustrated in Table 3.1.

The number of sample respondent from Taxpayers was selected from the target population using
simple random sampling techniques to respond the questionnaire. This sampling technique was used
because it assures to be able to represent not only the overall population, but also key groups of the
population; and it gives each possible sample combination an equal probability of being picked up
and to have an equal chance of being included in the sample (Creswell, 2009).

33
Furthermore, Tax Auditors of the Authority and members of top level management of Oromia
Revenue Authority were selected as a sample purposively using Census sampling technique to
respond the questionnaire and interview respectively. As stated by Kothari (2004), Census sampling
technique enables to select all existing respondents and is takes place when the researcher included
all members of the population to the study; usually if the number population is small. Thus, those
groups were selected for this study as sample respondents; because they are small in number and
their positions are important in describing the practices and challenges of tax audit at Head Office
of Oromia Revenue Authority. This helped the researcher to get significant information from them
for the study.

Table 3.1: Target Population, Sample Size and Sampling Techniques

Completed
Sample Size Sampling
Respondents Population Questionnaires
Techniques
Number % Number %
Tax Payers 547 226 41.32 213 94.25 Simple random

Tax Auditors 33 33 100.00 32 96.97 Census

Total 580 259 44.66 245 94.59

Among the questionnaires initially distributed to a total of 259 respondents (226 Taxpayer and 33
Tax Auditors); 213 (94.25%) Taxpayers and 32 (96.97%) Tax Auditor (a total of 245 or 94.59%
respondents) had appropriately filled and returned. Thus, interpretation of the data and analysis of
the results and discussions were based on the responses collected and organized from appropriately
filled and returned questionnaires.

3.3.1.2. Instrument design, surveys' administration and data analysis

In this study Two sets of survey instruments were used; one for the taxpayers and the other one for
the tax auditors survey. The survey used semi structured instruments where both closed and open
ended questions were included. Initially the questionnaire was prepared in English language, and
then translated to Amharic languages to make the respondents (particularly Taxpayers) easily
understood the questions and respond them correctly.

The instruments for Tax Auditors had four parts. The first part asks questions about respondents’
profile. Part two contains questions about Tax Audit practices. In the third part questions related to
Tax Auditors proficiency and competency were raised. The fourth part of the questionnaire
encompasses about challenges of Tax Audit practices at Head Office of Oromia Revenue Authority.
Whereas, the instruments for Tax Payers were categorized in to three parts; excluding questions

34
related to Tax Auditors proficiency and competency. Both instruments used a 5 point Likert scale.
The instruments were initially developed in English and then translated to Amharic language
(particularly for Taxpayers). These instruments are presented in Appendix A-C.

In conducting the surveys, this study used self-administered questionnaire approach where
questionnaires were distributed in person to selected respondents. The researcher along with a
research assistant distributed the survey instruments and collected them back.

The data collected for this study were checked from collection to data entry before they were ready
for analysis. At the beginning the data collected from all sources were checked and organized with
respect to basic research questions and objectives of the study. They then analyzed quantitatively
and qualitatively.

The quantitative data were tabulated and processed using Statistical Package for Social Sciences
(SPSS V-20). It was preferred to use in this study, since it has the capacity and flexibility to process
quantitative data and generates an ultimate range of simple and sophisticated statistical results
(Langdridge, 2004). So, the researcher believed that using SPSS was appropriate in processing and
analyzing the data collected for this study. Moreover, for visual presentation of the results of the
study, quantitative data collected from all sources and processed through SPSS were organized and
illustrated in tables and graphs.

The analyses of these quantitative data were made using descriptive statistics, like frequency,
percentage, mean, standard deviations and ranges. Furthermore, analysis and discussions of the data
were carried-out following each tables and graphs.

Validity and Reliability Test

According to Ann et al., (2012:81-82), the concept of validity is used to judge whether the data
collection instrument used in any research accurately measures what it intended to measure. Thus,
validity is focus to a criterion for the integrity of an instrument used for data collection in terms of
accuracy of inferences and trustworthiness. The results of this formula commonly known as
Cronbach’s alpha coefficient could be used to determine the reliability of an instrument. Whereas
reliability of is referred as the extent to which the instrument yields consistent result when the
characteristics being measured has not changed. So, in order to assure data quality, the instruments
prepared for data collection were validated and tested at pilot level for its reliability before used as
data collection tool.

35
Primarily, the validity of the instruments was tested by two instructors of the department including
the research advisor to judge the items on their appropriateness and clarity of the contents. The
comments forwarded from these professionals were used to make an amendment on some items of
the questionnaire. Then, the reliability of the questionnaire was tested through pilot study. In the
pilot study the questionnaires were distributed to 20 respondents randomly selected to respond the
questionnaire from Tax auditors and Taxpayers. Then, to test the reliability level of the
questionnaire, a Cronbach’s alpha coefficient was calculated.

Concerning the acceptance level of Cronbach’s alpha results, Bryman (1990) suggest that, the results
of reliability level is acceptable if it is 0.67 or above. Besides, Cohen et al. (2007:506) suggested
that: >0.90 = very high reliable; 0.80–0.89 = highly reliable; 0.70–0.79 = reliable; 0.60–0.69 =
marginally reliable; and <0.60 = lowly reliable or unacceptable.

Thus, to determine the acceptability of reliability level of the questionnaire; the calculated
Cronbach’s alpha coefficients for each items of the instrument was compared with the above
suggestions. Accordingly, the calculated Cronbach’s alpha coefficient for all items of the
questionnaire was found at 0.871. This confirmed that, the reliability level of the questionnaire was
found at High Reliability level.

3.3.2. Qualitative Aspect of the Study

The purpose of the qualitative aspect of this study is to deeply understand the tax audit practices and
challenges at the Oromia Revenue Authority. Accordingly, qualitative data was collected using the
open ended questions included in the two survey instruments and also in-depth interviews held with
three Officials: Deputy Head, Tax Audit Director and Tax Auditors Coordinator of Oromia Revenue
Authority.

Interviews were used to collect data from primary sources. They were used to gather data about the
thoughts, outlook and beliefs that the interviewees had about tax audit practices and challenges in
the Authority. The interview permits greater depth of response which was not possible through any
other means (Creswell, 2009). Thus, the purpose of using interview in this study was to collect more
supplementary opinion and information so as to stabilize the data collected through the
questionnaire. In addition, data were acquired through review of relevant documents held by the
Oromia revenue authority. These documents include plans, reports and others similar official
documents.

36
Thus, considering the advantages of its flexibility in which new questions could be forwarded during
the interview session, semi-structured questions were prepared and used for this study. The interview
session were administered with three top level management of Oromia Revenue Authority on face-
to-face and one-to-one bases by the researcher. This enabled the researcher to focuses on some
specific issues to be raised for different interviewee’s separately during the interview session. Thus,
the qualitative data that were obtained from interview responses were presented and narrated in
separated section of Chapter Four after the analysis of quantitative data illustrated in tables and
graphs.

3.4. Conclusion and Link between Research Questions and Data Sources
This chapter discussed about the methodological approaches adopted in the study. As shown a mixed
research approach dominated by the quantitative approach was adopted. As part of the quantitative
approach the study used survey design where survey of taxpayers and tax auditors was conducted.
Table 3.2 summarizes the link between research questions and different data sources employed in
the study.
Table 3.2: Link between Research Questions and Data Collection Instruments

No Research Questions Data Sources

Tax Auditors Q7 to Q18
1 RQ1: How tax audit are practice in Oromia
Taxpayers’ Q7 to Q11
Revenue Authority with respect to:
Interviews
Tax Auditors Q9 and Q10
Types of tax audit frequently performed
Interviews
Tax Auditors Q11 and Q12
Tax audit case selection methods
Interviews
Tax Auditors Q13 and Q14
Audit techniques applied
Interviews
Tax Auditors Q15 and Q16
Frequency of audit performed Taxpayers’ Q9 to Q11
Interviews
Tax Auditors Q17 and Q18
The adequacy of tax audit resources
Interviews

RQ2: What is the extent of tax auditors’ Tax Auditors Q19 and Q20
2
proficiency and competency? Interviews
Tax Auditors Q21 to Q23
RQ3: What are the major challenges of tax audit
3 Taxpayers’ Q12 to Q14
practices in Oromia Revenue Authority?
Interviews

37
 CHAPTER FOUR

4. RESULTS AND DISCUSSION

This chapter presents results and discussions based on the analysis done on the data collected from
the respondents. Then, the results of the study are discussed by using the findings obtained from
different source results: questionnaire results, and interview results. The discussion attempts to
accomplish the objectives of the study, and answer the research questions.

So, the results and discussion of the data in this chapter were divided in to three parts. The first part
of the chapter presents survey results and interview responses administered with Officials. In the
second part of the chapter discussions made on major findings of the study were presented. Finally,
in the third part of the chapter, concluding remarks were presented briefly.

4.1. Results
In this part of the chapter survey results and interview responses administered with Officials were
presented considering objectives of the study and research questions.

4.1.1. Survey Results

The results presented in this part of the chapter were divided in to four parts. The first part presents
about background information of the respondents. In the second part issues related to tax audit
practices with respect to: types of tax audit frequently performed; tax audit case selection methods
used; aaudit techniques applied; frequency of audit performed; and the adequacy of tax audit
resources were presented and analyzed in detail. Next to this, in the third part, issues related to the
extent of tax auditors’ proficiency and competency were presented. Finally, in the fourth part major
challenges of tax audit practices at Head Office of the Region were presented.

4.1.1.1. Respondents’ Profile

In this part of the chapter, information collected regarding background of the respondents, which
includes gender, age, educational status, experience and current job position of the respondents were
presented using the data illustrated in Tables.

38
Table 4.1: Gender Distribution of Respondents’

Tax Payers Tax Auditors Total

Gender
Count % Count % Count %

Male 165 77.46 23 71.88 188 76.73

Female 48 22.54 9 28.13 57 23.27

Total 213 100 32 100 245 100

Source: Taxpayers and tax auditors’ field Surveys and own computation (September, 2017)

With regards to Gender; as illustrated in Table 4.1, the number of male respondents was higher than
female. In similar manner, percentage share of male respondents from Taxpayer (77.46%) was
almost equal to that of Tax auditors (71.88%).

The number of female respondents accounts only 22.54% of Taxpayers and 28.13% of Tax auditors
participated in this study. This showed that the participation of female was very low when compared
to male as Taxpayer and Tax Auditor in the study area.

Table 4.2: Age Distribution of the Respondents’

Tax Payers Tax Auditors Total

Age Groups
Count % Count % Count %
Less than 30 Years
31 14.55 6 18.75 37 15.10
30-40 Years
98 46.01 17 53.13 115 46.94
41-50 years
67 31.46 8 25.00 75 30.61
Above 50 year
17 7.98 1 3.13 18 7.35

Total 213 100 32 100 245 100

Source: Taxpayers and tax auditors’ field Surveys and own computation (September, 2017)

In terms of age, the data illustrated in Table 4.2 showed that, the age of most respondents (46.94%
of Taxpayer and 53.13% of Tax Auditors) was found between an age group of 30-40 years. Next to
this, 30.61% of Taxpayers’ and 25% of Tax auditors’ age was found between 41-50 years. On the
other hands, the number of respondents above 50 years old accounts only 7.98% (That is, 7.35% of
Taxpayer and 3.13% of Tax Auditors).

In general, the data of the figure showed that, majority of the respondents’ age was found between
30-50 years. This implies that, in terms of age, respondents were matured.

39
Table 4.3: Educational Background of the Respondents

Taxpayers Tax Auditors Total

Level of Education
Count % Count % Count %
Primary School Education 9 4.23 0 0.00 9 3.67
Secondary School Education 22 10.33 0 0.00 22 8.98
Certificate 11 5.16 0 0.00 11 4.49
Diploma 60 28.17 0 0.00 60 24.49
First Degree 104 48.83 25 78.13 129 52.65
Master's Degree 6 2.82 6 18.75 12 4.90
Others 1 0.47 1 3.13 2 0.82
Total 213 100 32 100 245 100
Source: Taxpayers and tax auditors’ field Surveys and own computation (September, 2017)

Concerning educational background of the respondents, the results illustrated in Table 4.3 indicated
that, about half of the Taxpayers (48.83%) participated in this study had a Bachelor’s degree level
of education. Next to this 28.17% of them were with diploma level of education. Moreover, the data
of the Table showed that, the number of Taxpayers with Certificate and Secondary School Education
accounts 5.16% and 10.33% respectively. Yet, few Taxpayers (4.23%) educational status was found
at completion of primary school education (Grade 1-8).

In relation to Tax Auditors’ educational background, the data of the Table showed that, majority of
them (78.13%) were with bachelor degree level of education. The remaining 18.75% of Tax
Auditors had Master's degree level of education and 3.13% of the Tax Auditors educational status
was not identified. This implies that, in terms of educational status, almost all of the respondents
were educated and had sufficient knowledge to respond the questionnaire.
Table 4.4: Experiences of the Respondents
Experiences of Tax Auditors' Work
Total
Taxpayers' with ORA Experiences
Years
Count % Count % Count %

1-5 years 54 25.35 6 18.75 60 24.49

6-10 years 111 52.11 14 43.75 125 51.02

11-15 years 30 14.08 10 31.25 40 16.33

Above 15 years 18 8.45 2 6.25 20 8.16

Total 213 100 32 100 245 100

Source: Taxpayers and tax auditors’ field Surveys and own computation (September, 2017)

40
With regard to work experiences of the respondents; the data illustrated in Table 4.4 showed that,
majority of the respondents (51.02%), that is, 52.11% of Taxpayers and 43.75% of Tax Auditors
had a work experiences of 6-10 years. Next to this, about one-fifth of the Taxpayers (25.35%) had
a work experiences with Oromia Revenue Authority for 1-5 years. On the Other hands, about one-
third of Tax Auditors (31.25%) had a work experiences of 11-15 years.

Moreover, as can be seen from the Table, few respondents (8.45% of Taxpayers and 6.25% of Tax
Auditors) were experienced for more than 15 years.

In general, the data illustrated in the Table showed that, the experiences of most respondents was lie
above five years (75.51%); implying respondents’ capability to respond the questionnaire in terms
of their experiences was sufficient.

Table 4.5: Job Position of the Respondents

Respondents Current Job Position Count %

Owner 28 13.15
Owner and Manager 58 27.23
Manager 41 19.25
Taxpayers
Accounts/Finance Head 84 39.44
Others 2 0.94
Total 213 100
Tax Auditor 25 78.13
Tax Investigator 2 6.25
Tax Assessors 1 3.13
Tax Auditors
Tax Audit Team-leader 3 9.38
Others 1 3.13
32 100
Source: Taxpayers and tax auditors’ field Surveys and own computation (September, 2017)

The data in Table 4.5 illustrated current job position of the respondents. According to the data of
this Table, out-of Taxpayers participated in this study, 39.44% of them were currently working as
an Accounts or Finance Head of the Taxpayers’ business firm. Moreover, 27.23% of them were
currently working as Owner and Manager of the firms. Furthermore, those respondents known only
as Owners of the business firms accounts 13.15%. Accordingly, the participation of Owners of the
Business firms in this study took highest share (49.38%, that is 13.15% as Owner and 27.23% as
Owner and Manager) from the respondents categorized as Taxpayers. Yet the number of managers
accounts 19.25% of the respondents categorized under Taxpayer.

41
This implies that, respondents participated in this study, particularly Accountants, Head of Finance
and Management of the business firms were appropriate in that, they know the issue of Accounting
and finance of the firm; they are responsible for financial transaction of the firm; they have a direct
relationship with government offices responsible for Tax issues; and they are accountable and be
able to prepare and approve Income statements and Balance Sheets of the business firms.

With regards to Tax Auditors, the data of the Table clearly showed that, 78.13% of them were those
respondents assigned in Oromia Revenue Authority as Tax Auditor. In Addition 9.38% of them
were officers assigned as Tax Audit Team Leader. The remaining few respondents were from Tax
Investigator (6.25%) and Tax Assessors (3.13%).

Overall, according to the data of this Table, more than 86% of those respondents (Tax Auditors
group) were those individuals assigned as Tax Auditor and Tax Audit Team Leader at Head Office
of Oromia Revenue Authority. This indicated, the participation of appropriate respondents from
Head Office of Oromia Revenue Authority to respond the questionnaire.

Figure 4.1: Business Types of the Taxpayers (%)

Services, 17.37 Manufacturing , 6.10

Trade , 24.88

Construction , 46.01
Agriculture, 5.63

Source: Primarily data collected from field Survey- Taxpayers (September, 2017)

The data illustrated in Figure 4.1 showed that, among all 213 business types of the Taxpayers
participated in this study, those Taxpayers from Construction sector accounts largest percentage
share (46.01%). Following this, Taxpayers from Trade (24.88%) and Service sector (17.37%) were
found at 2ndand 3rdlevels respectively. The highest number of Taxpayer from Construction sector

42
may be associated with the notion that, construction industry is highly developing and increasing at
present time in the country and the Region.

Besides, very few Taxpayers were participated from Manufacturing Industry (6.10%) and
Agricultural (5.63%) sectors. Such small number of Taxpayers from Manufacturing Industry and
Agricultural sectors at Head Office level of ORA, may be associated with that, most of the time
those engaged on Manufacturing Industry are assigned to pay a tax at Federal level; and those
involved on Agriculture were usually assigned to pay a tax at Local level.

In this regards, according to the data obtained from Oromia Revenue Authority information Desk,
those investors licenced at Regional level and worked at different zones and district of Oromia are
assigned to pay a tax at Head Office of Oromia Revenue Authority.

4.1.1.2. Tax Audit Practices

In this part respondents’ responses regarding Tax Audit practices at Head Offices of Oromia
Revenue Authority were presented. It basically focused on the types of tax audit frequently
performed; Tax Audit case selection methods used; Audit techniques applied; frequency of audit
performed; and the adequacy of tax audit resources.

Table 4.6: Respondents’ View on the Ultimate goals of Tax Audit Program

Taxpayers Tax Auditors

Total
Items (N=213) (N=32)
Mean SD Mean SD Mean SD

Increasing government tax revenue 3.63 1.20 4.00 1.32 3.68 1.22

Increasing the compliance level of

3.38 1.24 4.09 0.64 3.47 1.20
Taxpayers’ to the tax laws
Creating deterrent effect on non-
3.37 1.27 3.09 1.44 3.33 1.29
compliant Taxpayers

Detecting tax evasion and avoidances 3.61 1.18 3.94 1.05 3.65 1.17

Training the Taxpayers 2.24 1.44 2.63 1.36 2.29 1.43

Overall Results 3.25 1.36 3.55 1.32 3.29 1.36

Source: Taxpayers’ and tax auditors Surveys and own computation (September, 2017)
Scales: 5=Strongly Agree, 4=Agree, 3=Neutral, 2=Disagree, and 1= Strongly Disagree

With regards the purposes of Tax Audit programs respondents were asked to rate the ultimate goals
of the tax audit program at Head Office of Oromia Revenue Authority. Accordingly, the responses
of both groups of the respondents were illustrated in Table 4.6 including five items (For further
information see Appendix E).

43
As seen from the table, the overall practices of Oromia Revenue Authority, at Head Office to achieve
ultimate Goals of Tax Audit was found at moderate level (µ=3.29, 𝜎=1.36); without significance
differences between Taxpayers’ and Tax Auditors in responding all items illustrated in the Table.

However, among the five items listed in the Table; item number one (Increasing government tax
revenue: with µ=3.68, 𝜎=1.22); and item number four (Detecting tax evasion and avoidances: with
µ=3.65, 𝜎=1.17) were identified as the top-two objectives in that the practices of Tax Audit at Head
Office level of Oromia Revenue Authority was contributed more than the remaining other goals of
Tax Audit listed in the Table.

On the other hand, the practices in the Region was less contributed for the success of Tax Audit
objectives regarding Training the Taxpayers (µ=2.29, σ=1.43); and Creating deterrent effect on non-
compliant Taxpayers (µ=3.33, σ=1.29).

Table 4.7: Major Activities Usually Performed by Tax Auditors during Tax Audit Period

Taxpayers Tax Auditors Total

Items
Mean SD Mean SD Mean SD
Detecting noncompliance behavior of individual
2.70 1.39 3.09 1.20 2.76 1.37
taxpayer

Gather information on the health of the tax system

4.01 1.27 4.22 0.87 4.04 1.23
including compliance behavior

Training Taxpayers 2.33 1.41 2.66 1.07 2.37 1.37

Interpreting complex tax rules and regulations for

3.09 1.49 3.03 1.23 3.09 1.45
Taxpayers

Identify areas of tax law that require clarification and

3.21 1.37 3.63 0.75 3.26 1.31
amendment

Search for unregistered Taxpayers 3.30 1.29 3.59 1.29 3.34 1.29
Source: Taxpayers’ and tax auditors’ Surveys and own computation (September, 2017)
Scales: 5=Strongly Agree, 4=Agree, 3=Neutral, 2=Disagree, and 1= Strongly Disagree

With regards to major activities to be performed by Tax Auditors at Head Office of the Region;
Taxpayers and Tax Auditors who participated in this study were asked to rate extent of practices of
major activities usually performed by them during tax audit period. More specifically, six major
activities were identified and presented for respondents to rate the practices at Head Office level.

According to the data illustrated in Table 4.7 and Appendix F, both groups of respondents were rated
all items synonymously; and statistically significance differences was not observed between them.
The data illustrated in the table showed moderate mean score for majority of Tax Audit activities
identified by the respondents. Only one item was rated by respondents about higher level of practices
at the Head Offices of Oromia Revenue Authority.

44
Accordingly, the data of this table showed that, the practices of gather information on the health of
the tax system including compliance behavior (µ=4.04, σ=1.23) was better performed by Tax
Auditors of the Region than other activates expected from the Auditors. Next to this, as illustrated
in the Table, an activities of Tax Auditors of the Region was relatively better in searching for
unregistered Taxpayers (µ=3.34, σ=1.29).

On the other hand, respondents rating results illustrated in the table showed that out of the six items
listed in the table two of them have rated as they were not sufficiently performed by Tax Auditors
of Oromia Revenue Authority at Head Office level. These includes: providing training for Taxpayers
(µ=2.37, 𝜎=1.37); and detecting noncompliance behavior of individual taxpayer (µ=2.76, 𝜎=1.37).
This means, Tax Auditors of the Region are not made sufficient efforts in creating Taxpayers’
awareness that might help Oromia Revenue Authority to increase voluntary compliance of
Taxpayers and to mitigate future compliance risks at its Head Office level. However, Tax Auditors
were strong in gathering and collecting information on health of the tax system; which will be a
supportive task for Tax Auditors of the Region at Head Office level.

Table 4.8: Types of Tax Audit Usually Practiced in Oromia Revenue Authority (by Tax Auditors)

Items Count Mean SD Min. Max.

Desk Audit 32 4.03 0.967 2 5

Field Audit 32 4.19 0.821 2 5

Comprehensive Audit 32 4.25 0.440 2 5

Issue audit 32 3.50 0.672 2 5

Advisory audit 32 3.00 0.718 2 4

Registration Audit 32 2.91 1.279 1 5

Refund Audit 32 2.63 1.212 1 5

Fraud investigation 32 3.75 0.916 1 5

Source: Tax auditors’ Surveys and own computation (September, 2017)
Scales: 5=Strongly Agree, 4=Agree, 3=Neutral, 2=Disagree, and 1= Strongly Disagree

In the questionnaire, Tax Auditors who participated from Head Office of the Region were asked to
rate extent of practices of the types of Tax Audit at Head Office of Oromia Revenue Authority; and
their responses were illustrated in Table 4.8.

According to the data of this Table, Comprehensive Audit (µ=4.25, 𝜎=0.44); Field Audit (µ=4.19,
𝜎=0.82); and Desk Audit (µ=4.03, 𝜎=0.97) were rated by the respondents 1st to 3rd level respectively.

45
This indicated that, the practices of Tax Audit at Head Office of the Region was primarily
emphasized on a comprehensive examination of all information relevant to the calculation of a
taxpayer’s tax liability for a given period. Next to this Type of Tax Audit, the practices of Tax Audit
at Head Office of Oromia Revenue Authority most of the time gave attention to a detailed
examination of taxpayer’s books and records to determine whether the correct amounts were
reported on the tax returns. In such type of Tax Audit (Field Audit).Furthermore, the practices of
Tax Audit at Head Office of Oromia Revenue Authority put emphasis on Desk audit which usually
carried out annually and primarily based on a review of income tax and VAT returns, or basic ratios
comparing with previous periods or other Taxpayers in similar industries; and the crosschecking of
information included in the taxpayer files.

On the other hands among the eight types of Tax Audit listed in Table 4.8, Registration Audit
(µ=2.91, 𝜎=1.28); and Refund Audit (µ=2.63, 𝜎=1.21) were not sufficiently practiced at Head
Office of Oromia Revenue Authority as others. This indicated that, undertaking a pre-refund audit
to verify the taxpayer’s entitlement to a refund prior to processing a first refund claim particularly
for new registrants were not get proper attention at Head Office of Oromia Revenue Authority.
Moreover, the practices of Oromia Revenue Authority at Head Office level does not gave attention
for performing Registration Audit, which is an unannounced visits to taxpayer’s premises for new
enterprises to detect businesses operating outside the tax system. That is, the practices of Tax Audit
at Oromia Revenue Authority was not properly focused to ensures that the taxpayer has a basic
understanding of their obligations; keeps appropriate records; and issues proper invoices required
by law.

Regarding the criteria usually used for Tax Audit selections, Tax Auditors were asked to identify
those criteria dominantly practiced at Head Office of Oromia Revenue Authority. According to their
responses illustrated in Table 4.9, Amount of annual profit declared by Taxpayers and possible
amount of tax to be collected (µ=4.41, 𝜎=0.61); evasion and fraud related information on Taxpayer
(µ=4.38, 𝜎=0.91); long years of establishment of Taxpayers business firm (µ=4.19, 𝜎=0.86);
presences of Taxpayers associated compliance risks (µ=4.16, 𝜎=0.68); frequency of Taxpayers
complain on tax related issues (µ=4.13, 𝜎=1.01); and Taxpaying trends of the Taxpayers (µ=4.09,
𝜎=0.64) were identified as the top-six major selection criteria practiced at Head Office of Oromia
Revenue Authority.

46
Table 4.9: Responses of Tax Auditors on Tax audit Selection Criteria Usually Practices in Oromia
Revenue Authority (For further information see Appendix H)
Items Count Mean SD min Max
Amount of capital and high tax potential of the Taxpayer 32 3.88 1.18 1 5
Long years of establishment of Taxpayers business firm 32 4.19 0.86 2 5
Amount of annual profit declared by Taxpayers and possible amount
of tax to be collected
32 4.41 0.61 3 5

Number of Human resources in the Taxpayers business firm 32 3.69 1.23 1 5

Taxpaying trends of the Taxpayers: through Statistical techniques
using prior tax audit results in conjunction with taxpayer data
32 4.09 0.64 3 5
Level of taxpayer’s cooperation to give essential information
necessary for performing an audit
32 3.94 0.88 3 5

Presences of Taxpayers associated compliance risks 32 4.16 0.68 3 5

Frequency of Taxpayers complain on tax related issues 32 4.13 1.01 2 5
Availability of required resource for tax audit 32 3.34 0.97 2 5
Evasion and fraud related information on Taxpayer 32 4.38 0.91 2 5
Through screening and case review; using criteria set for this
purposes
32 3.91 0.93 1 5
Through data mining techniques that identifies patterns of
noncompliance in the past and current circumstances
32 3.63 0.79 3 5
Proportionality of the types and number of business sectors of the
Taxpayers
32 3.09 1.23 1 5
When Taxpayers reported tax returns less than previous period
return
32 3.06 0.88 2 4
Automated risk scoring system that identifies risk of noncompliance
of the Taxpayers
32 3.56 0.91 1 4
Relationship of the Taxpayers has with officials of the Authority
(beneficial relationship and nepotism)
32 2.72 0.99 1 5

Using simple random sampling technique without any analysis 32 2.69 1.23 1 4
Simply by orders given from officials of the authority 32 2.81 0.90 1 4
Audit knowledge of Taxpayers behavior and environment 32 3.44 1.13 1 5
Source: Tax auditors’ field Surveys and own computation (September, 2017)
Scales: 5=Strongly Agree, 4=Agree, 3=Neutral, 2=Disagree, and 1= Strongly Disagree

Moreover, Tax Audit selection criteria like: level of taxpayer’s cooperation to give essential
information needed for performing an audit (µ=3.94, 𝜎=0.88); through screening and case review;
using criteria set for this purposes (µ=3.91, 𝜎=0.93); and amount of capital and high tax potential of
the Taxpayer (µ=3.88, 𝜎=1.18) were also frequently practices at Head Office of Oromia Revenue
Authority.

On the other hand, among nineteen items listed in Table 4.9, issues like proportionality of the types
and number of business sectors of the Taxpayers (µ=3.09, 𝜎=1.23); Taxpayers reported tax returns
less than previous period return (µ=3.06, 𝜎=0.88); simply by orders given from officials of the
authority (µ=2.81, 𝜎=0.90); informal relationship of the Taxpayers has with officials of the
Authority (µ=2.72, 𝜎=0.99); and using simple random sampling technique without any analysis

47
(µ=2.69, 𝜎=1.23) were not frequently used as Tax Audit selection criteria at Head Office of Oromia
Revenue Authority when compared to the remaining criteria listed in Table 4.9.

These clearly showed that the criteria used to select Taxpayers business firm for Tax Audit were
focused on information come from Taxpayers than systematically organized strategies designed by
Head Office of Oromia Revenue Authority. This indicated weak consideration of critical aspects of
Tax Audit issues from Head Office of Oromia Revenue Authority sides.

Table 4.10: Tax audit Techniques Usually Practiced in Oromia Revenue Authority (for further
information see Appendix I)

Items Count Mean SD min Max

Analytical Review: A review of financial statements and returns are
often completed during the preliminary stages of the audit. They are
32 4.09 1.00 1 5
used to test the accuracy of Taxpayers' reported sales, cost of sales,
or ending inventory
Field Examination: This include on sight survey of the current
conditions of the taxpayer’s business through physical checks of
32 2.31 1.33 1 5
original transaction records and vouchers, assets and liabilities and
other aspects of the business
Record Examination: This include the examination of books and
documents conducted at the taxpayer’s business office or branches,
32 3.41 1.19 1 5
counterpart examinations and examination of savings and deposit
accounts
Investigative Approach: Such an approach uses information
obtained through observation, discussion, documents or records
obtained from either the taxpayer or other sources. It requires 32 2.19 1.20 1 5
judgment, imagination and using information outside the accounting
records to perform the audit
Counterpart Examination: It is an examination performed based on
third party information to verify the taxpayer’s income, for example:
32 3.66 1.43 1 5
Financial institutions and public companies information on interest and
dividends matched with what Taxpayers report in their tax return
Source: Tax auditors’ field Surveys and own computation (September, 2017)
Scales: 5=Strongly Agree, 4=Agree, 3=Neutral, 2=Disagree, and 1= Strongly Disagree

The data illustrated in Table 4.10 showed that, all Tax audit techniques were to some extent practiced
at Head Office of Oromia Revenue Authority. However, the practices of using Analytical Review,
that is, reviewing financial statements and returns to test the accuracy of Taxpayers' reported sales,
cost of sales, or ending inventory (µ=4.09, 𝜎=1.00); and Counterpart Examination, a technique of
examination performed based on third party information to verify the taxpayer’s income (µ=3.66,
𝜎=1.43) were relatively practiced higher than the remaining three Tax Audit techniques.

Moreover, the data of the Table also indicated that, a Tax audit Techniques known as Record
Examination: which include the examination of books and documents conducted at the taxpayer’s

48
business office or branches (µ=3.41, 𝜎=1.19) was also moderately practices at Head Office of
Oromia Revenue Authority.

On the other hands, a technique known as Field Examination, which include on sight survey of the
current conditions of the taxpayer’s business through physical checks of original transaction records
and vouchers, assets and liabilities and other aspects of the business (µ=2.31, 𝜎=1.33); and
Investigative Approach: an approach that uses information obtained through observation,
discussion, documents or records obtained from either the taxpayer or other sources using
information outside the accounting records to perform the audit (µ=2.19, 𝜎=1.20) were not practiced
as other Tax Audit techniques at Head Office of Oromia Revenue Authority.

Table 4.11: Practices of Using Tax Audit Schedules/Timeframe for All Taxpayers

Taxpayers Tax Auditors Total

Responses
Count % Count % Count %

Yes 59 27.70 14 43.75 73 29.80

No 154 72.30 18 56.25 172 70.20

Total 213 100 32 100 245 100

Source: Taxpayers and tax auditors’ field Surveys and own computation (September, 2017)

A plan is a set of action in the future. It consists of a detailed proposal to perform something in the
scheduled timeframe. So, Tax Audit activities should be scheduled to effectively perform the
intended objectives of the organization and to work Tax Audit activities in accordance with rules
and regulations. However, the practices at Head Office of Oromia Revenue Authority was very
much different from such facts and principles.

According to the data illustrated in Table 4.11, more than one-third of the respondents (70.20%)
were not agreed the presence of schedules for Taxpayers that requires Tax audit works to be started
and completed within a predetermined timeframe. In this regards, there was certain differences
between the two groups of respondents; in that, the percentage of Taxpayers was (72.30%) much
higher than that of Tax Auditors’ (56.25%) in refusing the presence of Tax Audit schedules.

On the other hands, out of all respondents, only 29.80% of them were agreed the presence of such
schedules at Head Office of Oromia Revenue Authority. This indicated that, most of the time Tax
Audit activities were done without schedules, unplanned and carried out arbitrarily. That is, there

49
was no time consideration by Tax Auditors of Oromia Revenue Authority when going in to Tax
Audit activities of the Taxpayers.

Regarding frequency of Tax Audit to be carried-out at business firms of a Taxpayers; respondents

were asked to rate the actual practices at Head Office of Oromia Revenue Authority; and the
responses of the respondents were illustrated in Table 4.12.

Table 4.12: Frequency of Tax Audit performed at Taxpayers Business Firms

Taxpayers Tax Auditors Total

Items
Count % Count % Count %
Every businesses firm was audited once a year 26 12.21 6 18.75 32 13.06

Every businesses firm was audited once within

37 17.37 8 25.00 45 18.37
two years

On average any businesses firm was audited

89 41.78 10 31.25 99 40.41
once within three years

A minimum every businesses firm was audited

40 18.78 7 21.88 47 19.18
once within five years

It is difficult to describe its frequency; they were

21 9.86 1 3.13 22 8.98
selected randomly

Total 213 100 32 100 245 100

Source: Taxpayers and tax auditors’ field Surveys and own computation (September, 2017)

According to the results illustrated in this Table, most of the respondents (40.41%) responded that,
on average a Taxpayers’ businesses firm was audited once within three years. Moreover, 19.18% of
the respondents were responded as the businesses firm was audited once within five years.
Additionally, 18.37% of the respondents were indicated as Taxpayers businesses firm was audited
once within two years.

On the other hands, as illustrated in Table 4.12, those respondents who agreed the frequency of Tax
Audit of the businesses firm once every fiscal year accounts only 13.06% of all respondents
participated in this study. This was responded by 12.21% of Taxpayers and 18.75% of Tax Auditors.

In general, about 80% of both group the respondents were responded as the frequency of Tax Audit
performed at every business firms’ of the Taxpayers was every two or three years; even more than
five years. Yet, significant number of respondents (8.98%) were also responded as it was difficult
to describe the frequency; they were selected randomly.

50
Table 4.13: Tax Auditors Responses for Items Related to Tax Audit Resources
Items Count Mean SD Min Max
There were well organized structure and suitable office for Tax audit
32 4.03 1.12 1 5
functions
Tax audit has enough human resources to perform audits on all
32 2.91 1.30 1 5
Taxpayers
There are enough material and equipment required for tax audit
32 4.22 1.16 1 5
program

Required budget for Tax audit was sufficiently allotted every year 32 3.53 1.27 1 5

Computers and appropriate digital technology required for tax audit

32 4.28 1.08 1 5
are accessed at Head Office of the Authority
Source: Tax auditors’ field Surveys and own computation (September, 2017)
Scales: 5=Strongly Agree, 4=Agree, 3=Neutral, 2=Disagree, and 1= Strongly Disagree

With regard to the availability of resources required for tax audit, the data illustrated in Table 4.13
showed tax auditors rating results. According to the responses of tax auditors, Oromia Revenue
Authority was arranged and organized tax audit function with computers and appropriate digital
technology required for tax audit at Head Office level (µ=4.28, 𝜎=1.08). Moreover, tax auditors also
rated highest mean score (µ=4.22, 𝜎=1.16) regarding the availability of enough materials and
equipment’s required for tax audit programs at Head Office of Oromia Revenue Authority. In a
similar manner, issues regarding availability of organized structure and suitable office for tax audit
function was also rated higher mean score by Tax Auditors’ (µ=4.03, 𝜎=1.12).

On the other hands, as can be seen from the table, the issue of having sufficient human resources
needed for tax audit at regional level (µ=2.91, 𝜎=1.30) was not fully available to perform tax audit
activities at all Taxpayers’ business firms. In addition, regarding the allocation of required budget
for tax audit activities was rated by the respondents 3.53 mean value (𝜎=1.27); indicating about
moderate level of budget allotted every year for tax audit activities of the region.

In general, the date of the table clearly indicated that, the Authority had faced a problem in having
enough human resources (particularly Tax Auditors) than office facilities, equipment’s and digital
technology required for tax audit at Head Office level of Oromia Revenue Authority.

Regarding overall practices of Tax audit, both group of respondents were further asked to evaluate
the current practices curried-out at regional level: Head Office.

As can be seen from the data of Table 4.14, majority of Taxpayers were responded as the practices
were Poor (45.07%) and Very Poor (21.13%). Moreover, 20.66% of them were rated ‘Satisfactory’.
On the Other hands, only 4.23% and 8.92% of the Taxpayers were rated the practices of Tax audit
of the Region Excellent and Very Good respectively. In this regards, the mean score calculated for

51
Taxpayers’ responses (µ=2.30, 𝜎=1.03) also revealed poor practices of Tax audit at Head Office of
Oromia Revenue Authority as perceived by Taxpayers.

Table 4.14: Respondents Ratings on Overall Practices of Tax Audit in Oromia Revenue Authority

Taxpayers Tax Auditors Total

Responses
Count % Count % Count %
Excellent 9 4.23 2 6.25 11 4.49

Very Good 19 8.92 4 12.50 23 9.39

Satisfactory 44 20.66 11 34.38 55 22.45

Poor 96 45.07 10 31.25 106 43.27

Very Poor 45 21.13 5 15.63 50 20.41

Total 213 100 32 100 245 100

Mean 2.30 2.63 2.34

SD 1.03 1.10 1.05

Source: Taxpayers’ and tax auditors’ Surveys and own computation (September, 2017)

Likewise, the responses of Tax Auditors illustrated in the Table also showed that, about one-third
of them (34.38%) were rated overall practices of tax Audit at the regional level ‘Satisfactory’.
Whereas, large number of them were responded as the practices were Poor (31.25%) and Very Poor
(15.63%). Those Tax Auditors who rated Excellent and Very Good were accounts only 6.25% and
12.50% respectively. The mean results (µ=2.63, 𝜎=1.10) of Tax Auditors rating also confirmed
below satisfactory level of Tax Audit practices at Head Office of Oromia Revenue Authority.

Furthermore, according to the responses of both groups of respondents, illustrated in the Table;
majority of the respondents (43.27%) were rated current practices of Tax Audit at Head Office of
the Region ‘Poor’. In addition, 20.41% of them had rated 'Very Poor'. Only 4.49% and 9.39% of
both groups of the respondents were rated the practices 'Excellent and Very Good' respectively.

Besides, the mean score calculated for both groups of the respondents illustrated in last row of Table
4.14 (µ=2.34, 𝜎=1.05) also showed as the practices of Tax audit at Head Office level of the Region
was Poor. These clearly confirmed that, inefficiency of Tax audit practices at Head Office of the
Region.

4.1.1.3. Tax Auditors’ Proficiency and Competency

In this part data collected regarding extent of tax auditors’ proficiency and competency were
presented using figures.

52
Figure 4.2: Tax Auditors’ Professional Qualification (Field of Studies)

45.00
42.42

40.00

35.00

30.00

25.00

20.00

15.15
15.00
12.12

10.00 9.09 9.09

6.06 6.06
5.00

0.00
Accounting Tax Economics Public Management Business Development
Administration Administration Administration management

Source: Tax auditors’ field Surveys and own computation (September, 2017)

With regards to professional qualification (field of studies) of individuals assigned as Tax Auditor,
Accounting was strongly recommended. However, according to the data illustrated in Figure 4.2,
the practices in Oromia Revenue Authority is very much different from this facts. More than half of
the Tax Auditors (57.58%) were from non-Accounting field of studies. Those Tax Auditors qualified
with Accounting field of studies accounts only 42.42% of the Tax auditors currently working at
Head Office of Oromia Revenue Authority. In addition, few number of Tax Auditors were also
qualified with Tax Administration (9.09%) field of studies.

The remaining Tax Auditors were studied Management (15.15%), Public Administration (12.12%),
Business Administration (9.09%), Economics (6.06%) and Development Management (6.06%).

In this regards, according to information obtained from Oromia Public Service and Human
Development Bureau, a Job specification for Financial Auditors requested qualification in
Accounting and relevant work experiences in the areas of Auditing.

53
Figure 4.3: Mode of Assignment of Tax Auditors' to Current Job Position (%)

Recommendation of authorities’ 18.75

Internal Transfer 43.75

Transfer from other organization 9.38

Internal Promotion 21.88

Newly Employed 6.25

0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00

Source: Tax auditors’ field Surveys and own computation (September, 2017)

In the questionnaire, Tax Auditors were asked to respond how they were assigned to current job
position. Accordingly, respondents results illustrated in Figure 4.3 showed that, majority of Tax
Auditors were assigned to their current jobs through internal transfer (43.75%). Moreover, some of
them were assigned by recommendation of Authorities of the Region (18.75%) and internal
promotion (21.88%) held at Oromia Revenue Authority.

As can be seen from the Figure, the number of Tax Auditors newly employed and assigned at the
job position accounts only 6.25% of all Tax Auditors participated in this study. This indicated that,
the practices of getting and having new Tax Auditors at Head Office of Oromia Revenue Authority
was negligible. However, the Head Office was strongly practiced internal transfer in this regards.

Table 4.15: Training Offered for Tax Auditors Regarding Tax Audit Related Issues

Responses Count %

Yes 13 40.63

No 19 59.38
Total 32 100
Source: Tax auditors’ field Surveys and own computation (September, 2017)

On the basis of facts associated with training activities in an organization, respondents were asked
to respond whether they attended or not any training program related to their current job position

54
(Tax Audit) by Head Office of Oromia Revenue Authority in the recent past two years; and their
responses were illustrated in Table 4.15.

As illustrated in this Table, majority of the respondents (59.38%) were responded that they did not
attended any training programs related to their job during the past two years of their services at Head
Office of the Region. Only 40.63% of them agreed their participation on one or more Tax Audit
related training programs during the years mentioned above.

These respondents who responded their participation of training programs were further asked to
indicate topics of training and years of the program they were attended in the recent past two years.
With regard to topics of the training they received during the stated years; they mentioned topics
like utilization of Tax Audit manuals, Auditing using SIGTAS software, Program Budgeting, and
Balanced Scored Cared. Concerning years of their participation on training programs of the Office;
most of the respondents were not specified years of their attendance of the training programs.
Nevertheless, those who stated the years were responded as they were attended most of the trainings
during 2011/12 to 2013/14 budget years.

In general, the data illustrated in Table 4.15 and the above mentioned responses of these respondents
agreed their participation on training programs during the last two years shows that the participation
of Tax Auditors of the Region on different training programs was very low.

Table 4.16: Tax Auditors’ Self Evaluation Results on their Competency (For further information
see Appendix J)

Items Count Mean SD Min Max

Understanding and knowledge of Tax related rules and
32 3.41 0.87 2 5
regulation
Experience and capacity on Tax audit functions 32 3.06 0.91 1 5

Positive attitude towards Taxpayers 32 2.44 1.01 1 4

Team-work and working in collaboration among themselves 32 3.75 0.92 2 5

Effort made to improve their knowledge and skills 32 3.44 0.91 2 5

Properly serving and solving problems of Taxpayers 32 2.28 1.05 1 5

Impartiality and neutrality of Tax auditors 32 2.72 1.25 1 5

Overall Results 32 3.01 1.11 1 5

Source: Tax auditors’ field Surveys and own computation (September, 2017)
Scales: 5=Excellent, 4=Very Good, 3=Good, 2=Poor, and 1=Very Poor

An employee who would be assigned on Tax Audit job position is expected to have behavior and
competency like: sufficient understanding and knowledge on tax related rules and regulation;

55
positive attitude towards Taxpayers; team-work and working in collaboration; making continuous
effort to improve their knowledge and skills; appropriately serving and solving Taxpayers’
problems; and free from partiality and neutrality at work place (ORA's Employees Management
Regulation Reg. No., 160/2012).

With regards to this, the responses of the respondents illustrated in Table 4.16 showed Moderate
level of Tax Auditors’ competency (µ=3.01, 𝜎=1.11) in performing their current jobs at Head Office
of Oromia Revenue Authority. However, they are relatively better with regards to working in
collaboration among themselves (µ=3.75, 𝜎=0.92); effort they made to improve their knowledge
and skills (µ=3.44, 𝜎=0.91); and their understanding of tax related rules and regulation (µ=3.41,
𝜎=0.87).

On the other hands, the least rating result was identified regarding properly serving and solving
Taxpayers’ problems (µ=2.28, SD=1.05); attitude towards Taxpayers (µ=2.44, 𝜎=1.01); and
Impartiality and neutrality of Tax auditors (µ=2.72, 𝜎=1.25).

These indicated Tax Auditors were agreed that, they are comparatively focused and had the ability
to achieve personal matters than major issues related to their job position and objectives of the
organization.

4.1.1.4. Major Challenges of Tax Audit Practices

In this part responses of the respondents regarding the third research question; that is, major
challenges of tax audit practices at Head Office of Oromia Revenue Authority were presented. In
this regard, 16 items as the possible challenges of tax audit practices were identified from extensive
literature review were presented for the respondents to rate their severity at Head Office level of
Oromia Revenue Authority. Accordingly, the rating results of both groups of the respondents were
illustrated in Table 4.17 (For further information see Appendix G).

According to the data of this table, the maximum rating result (µ=4.208, 𝜎=0.927) was identified
regarding the tradition of corruption; and the minimum mean score was (µ=3.008, 𝜎=1.181)
regarding inadequacy of resource and facilities required for tax audit at the Region. However, as can
be seen from the data of the table, statistically significant difference was not observed between two
groups of respondents in responding the remaining 15 items.

56
Table 4.17: Major Challenges to the Practices of Tax Audit in Oromia Revenue Authority

Taxpayers Tax Auditors Total

Items
Mean SD Mean SD Mean SD

Traditions of Corruption: Request for informal payments to get

4.27 0.93 3.78 1.16 4.208 0.927
things done in the course of Tax assessment and Tax audit

Inflated estimation of tax amount on Taxpayers and unfair volume

4.15 1.04 3.88 1.24 4.114 1.035
of tax among similar businesses in the same proximity

Not properly responding the compliance of Taxpayers on time by

4.08 0.97 3.81 1.20 4.045 0.966
ORA
Taxpayers were consider illegal business practices as best way of
3.92 1.10 4.06 0.84 3.939 1.098
doing business
Absences of reliable and up-to-date data and records keeping
3.80 1.03 3.97 0.93 3.824 1.032
among Taxpayers

Absences of Coordinated efforts among sector offices of the

3.77 1.14 3.72 0.92 3.763 1.145
region engaged on Tax audit related responsibilities

Negative attitude towards tax paying practices among Taxpayers 3.58 1.21 3.56 1.39 3.576 1.213

Limited capacity of management and leadership on the part of

3.48 1.25 3.56 1.34 3.494 1.250
Oromia Revenue Authority on tax audit administration

Inconsistency and frequent changes of regulations and laws

3.38 1.33 3.50 1.05 3.396 1.332
related to Tax audit practices

Weak understanding of tax related rules and regulations among

3.24 1.23 3.53 1.32 3.278 1.234
Taxpayers

Interference of others on Tax Audit responsibilities 3.30 1.32 3.09 1.17 3.269 1.322

Taxpayers are not cooperative to give proper information for tax

3.20 1.07 3.22 1.24 3.200 1.072
auditors

Lower level of Taxpayers' educational background 3.10 1.07 3.41 1.32 3.139 1.070

Improper work environment and poor office arrangements for Tax

3.07 1.20 3.41 1.32 3.114 1.201
audit practices
Lack of clarity of policy, regulations and legal frameworks
2.98 1.30 3.34 1.04 3.024 1.297
regarding Tax Audit

In adequacy of resource and facilities required for Tax Audit 2.97 1.18 3.25 1.39 3.008 1.181

Source: Taxpayers and tax auditors’ field Surveys and own computation (September, 2017)
Scales: 5=Very Sever Challenge, 4=Sever, 3=Moderate, 2=Minor, and 1=Inconsiderable Challenge

This results illustrated in the Table indicated the following six items as highly severe challenges that
strongly affect the practice of Tax Audit at Head Office level of Oromia Revenue Authority. They
are: Traditions of Corruption: request for informal payments to get things done in the course of Tax
audit (µ=4.208, 𝜎=0.927); Inflated estimation of tax amount on Taxpayers and unfair volume of tax
among similar businesses in the same proximity (µ=4.114, 𝜎=1.035); Not properly responding the
compliance of Taxpayers on time by Oromia Revenue Authority (µ=4.045, 𝜎=0.966); Taxpayers

57
were consider illegal business practices as best way of doing business (µ=3.939, 𝜎=1.098);
Absences of reliable and up-to-date data and records keeping practices among Taxpayers (µ=3.824,
𝜎=1.032); and Absences of Coordinated efforts among sector offices of the region engaged on Tax
audit related responsibilities (µ=3.763, 𝜎=1.145).

Moreover, the results illustrated in table 4.17 further showed that, negative attitude towards tax
paying practices among Taxpayers (µ=3.576, 𝜎=1.213); limited capacity of management and
leadership on the part of Oromia Revenue Authority (µ=3.494, 𝜎=1.250); and inconsistency and
frequent changes of regulations and laws related to Tax audit practices (µ=3.396, 𝜎=1.332) were
moderately affect the practice of the tax audit in the Region.

Besides, though their rating results indicted moderate level of their influence on the practice of tax
audit at Head Office of the Region; the following challenges were identified as the least factors
among the 16 items listed in the Table. They are: - Inadequacy of resource and facilities required
for Tax Audit (µ=3.008, 𝜎=1.181); Lack of clarity of policy, regulations and legal frameworks
regarding Tax Audit (µ=3.024, 𝜎=1.297); Improper work environment and poor office arrangements
for Tax Audit practices (µ=3.114, 𝜎=1.201); and Lower level of Taxpayers' educational background
(µ=3.139, 𝜎=1.070).

In addition to close-ended questions of the questionnaire respondents were further asked to state
additional problems and obstacles that have been affecting the practice of tax audit at Head Office
the Region. Accordingly, they responded that, the following issues were among mentioned major
problem:- Lack of qualified human resource at Head Office level of Oromia Revenue Authority;
Not properly utilized software required for tax audit purposes; Network problems, while paying a
tax; Electric power faller and frequent disruption of power supply; Absence of strategy and systems
at Oromia Revenue Authority that enable to treat Taxpayers complaints; Unable to differentiate
those Taxpayers accomplish their responsibility and those did not governed by rule of a law; Lack
of competence and unethical behavior observed among tax auditor; Impartiality and nepotism
practices among tax auditors; Oromia Revenue Authority and tax auditors are not ready to support
Taxpayers; and Mischievous practices of Taxpayers in declaring the tax.

4.1.2. In-depth Interview Results

The interview was administered with Deputy Head, Tax Audit Director and Tax Auditors
Coordinator of Oromia Revenue Authority. An interview question were developed based on research

58
objectives and classified in to three major categories depending on specific research questions. So,
interview responses were organized and presented classifying in to three groups as follows.

Under this part primarily interviewees’ were asked major questions regarding Tax Audit practice at
Head Offices of Oromia Revenue Authority. The questions were basically focused on the types of
tax audit frequently performed; Tax Audit case selection methods used; Tax Audit techniques
usually applied; frequency of audit performed; and the adequacy of tax audit resources. Accordingly,
their responses were presented with the questions raised for the interviewees as follow.

The first question raised was “How do the officials describe the ultimate goals of tax audit program
in Oromia Revenue Authority.” They responded the question by saying, the audit program at Head
Office level focused on large Taxpayers. Particularly, those business firms of the Taxpayers licensed
at Regional level and worked at different zones and district of the Region are assigned to pay a tax
at Head Office level. They argued that those Taxpayers has large tax potential, has massive impact
on investment and other economic development of the Region and the Country at large. They further
stated that, since such Taxpayers can contribute a highest amount of tax revenue as well as have
complex structure, and multiple operating entities; they are assigned to pay a Tax at Head Office of
the Region.

As a result, the purpose of tax audit is primarily to properly collect government tax revenue; to
increasing the compliance level of Taxpayers’ to the tax laws; and to detecting tax evasion and
avoidances among Taxpayers. Further, the responses of the interviewees’ showed that Head Office
of Oromia Revenue Authority used tax audit as a compliance enforcement tool to collect unpaid
taxes from Taxpayers and to encourage Taxpayers to voluntarily discharge their tax obligations.

The interview respondents further stated that the issue of Taxpayers’ awareness creation is
unquestionable to increase voluntary compliance and to mitigate compliance risks. However,
though, they tried to create tax awareness through electronic media, printed materials, websites, and
few face-to-face discussion forum; with Taxpayers they responded as they did not strongly
emphasize on supporting Taxpayers and offering training to them as the ultimate goals of tax audit
program in Oromia Revenue Authority.

Another question raised in relation to the practices of Tax Audit was “what are the major activities
tax auditors usually perform during tax audit period?” The interview respondents stated that, tax
auditors of the Head Office had basically gather information from business firms of the Taxpayers
and third parties such as banks, and generally enforce payment of tax. Moreover, they stated
activities like: gathering information on the health of the tax system including compliance behavior;

59
searching unregistered Taxpayers; and detecting noncompliance behavior of individual taxpayer as
an activities tax auditors frequently perform during tax audit periods. According to the responses of
those Officials, the noncompliant Taxpayers are penalized and enforced to pay the evaded tax with
penalty and interest so as to maximize their future compliance as well as to educate others to comply
by publicizing such enforcement.

Concerning Types of tax audit frequently performed; the interviewees were asked to respond; “What
types of Tax Audit are usually performed by Tax Auditors at Head Office of Oromia Revenue
Authority?”

Accordingly, they responded as Comprehensive Audit; Field Audit; and Desk Audit were frequently
performed by Tax Auditors at Head Office of Oromia Revenue Authority. They further explain that,
the practices of Tax Audit at Head Office of the Region was primarily emphasized on a
comprehensive examination of all information relevant to the calculation of a taxpayer’s tax liability
for a given period. In such type of Tax Audit, the objective is to determine the correct tax liability
for a tax return as a whole.

Moreover, in the practices of Field Audit type of Tax Audit, most of the time attention was given to
a detailed examination of taxpayer’s books and records to determine whether the correct amounts
were reported on the tax returns. Furthermore, as to the responses of the interviewees, the practices
of Tax Audit at Head Office of Oromia Revenue Authority put emphasis on Desk audit which
primarily based on a review of income tax and VAT returns, or basic ratios comparing with previous
periods or other Taxpayers in similar industries; and the crosschecking of information included in
the taxpayer files.

The interview results also revealed that Oromia Revenue Authority sometimes conducts Fraud
investigation audit at Head Office level based on the information that comes from various sources
with evidence regarding the deliberate evasion and serious fraud.

On the contrary, the interview respondents were agreed that, among the known types of Tax Audit,
registration Audit and Refund Audit were not sufficiently practiced at Head Office of Oromia
Revenue Authority. This means, undertaking a pre-refund audit to verify the Taxpayers’ entitlement
to a refund prior to processing a first refund claim were not get proper attention at Head Office of
Oromia Revenue Authority. Moreover, they did not gave attention for performing an unannounced
visits to taxpayer’s premises for new enterprises to detect businesses operating outside the tax
system. That is, the practices of Tax Audit at Oromia Revenue Authority was not properly focused

60
to ensures that the taxpayer has a basic understanding of their obligations; keeps appropriate records;
and issues proper invoices required by law.

In relation to Tax audit case selection methods used; the Officials were asked to respond a question
regarding the conditions and major criteria usually used by Oromia Revenue Authority to decide the
need for tax audit of a certain Taxpayer.

As testified by the interview responses of the officials, the segments and sectors of Taxpayers have
been selected based on their associated compliance risk for audit. The interview respondents further
stated risk criteria that include: the trend of delay in tax payment, non-filing tax returns, nil tax
declaration, showing abnormal and repetitive loss report, profits significantly deviated from
previous periods, report of too deviated margin from the sector, over claimed deductions, unusual
credit, and past case histories of Taxpayers’.

In addition, the interview results further confirmed that, the potential amount of tax revenue that
might be found with the target taxpayer and the capability of that particular taxpayer to pay tax owed
have been considered to perform an audit work.

The interviewees were further responded that, for the purpose of audit case selection, Oromia
Revenue Authority has partially implemented automated tax return filing systems. As a result, the
Head Office of Oromia Revenue Authority to some extents have been using case selection system
or random selection and risk-based approach simultaneously.

Regarding Audit techniques applied at Head Office of Oromia Revenue Authority, the Officials
were asked to describe which Tax Audit Techniques are usually applied by auditors of Oromia
Revenue Authority auditor to collects audit evidence from Taxpayers. Accordingly, they were
responded as all types of Tax Audit techniques were practiced at Head Office of the Region.
Nevertheless, the practices of reviewing financial statements and returns of the Taxpayers to test the
accuracy of reported sales, cost of sales, or ending inventory; a technique that focuses on examining
a third party information to verify the taxpayer’s income were relatively practiced at Head Office of
Oromia Revenue Authority.

Nevertheless, according to interview responses the Officials, on sight survey of the current
conditions of the taxpayer’s business through physical checks of original transaction records and
vouchers, assets and liabilities and other aspects of the business; and an approach that uses
information obtained through observation, discussion, documents or records obtained from either

61
the taxpayer or other sources were not usually practices as other Tax Audit techniques at Head Office
of Oromia Revenue Authority.

In relation to the frequency of Tax Audit performed at Head Office of Oromia Revenue Authority,
those respondents selected for interview were asked a question that emphasized on existence and
utilization of schedules for all Taxpayers that necessitates Tax audit works to be started and
completed within a predetermined timeframe.

However, the officials were not strongly approved the practices frequent utilization of schedules for
all Taxpayers that requires Tax audit works to be started and completed within a predetermined
timeframe. Nevertheless, they responded that, there were a practices of having and using annual plan
for Audit activities at department and work unit levels.

Since planning requires a detailed proposal of activities to be perform in scheduled timeframe; it

demanded Oromia Revenue Authority’s tax Audit activities at Head Office to be planned showing
the times when they are intended to be done at Taxpayers business firms. In this regard, however,
the Officials were not surely responded as the practices of carrying-out Tax Audit of the Taxpayers
on scheduled manner efficient.

Moreover, those Officials were asked “How frequently Tax Audit was performed at every business
firms of the Taxpayer by Tax auditors of Oromia Revenue Authority?” In their responses, they could
not indicated specific time-frame and frequencies by which every Taxpayers’ business firm was
audited. They said that, as much as possible some of them were audited annually or once within two
years. They also replied, as it was difficult to describe the frequency of Tax Audit practices carried-
out at business firms of every Taxpayers. This indicated the agreements of interview respondents
that, most of the time Tax Audit activities were done at Taxpayers business firm without having and
using schedules haphazardly.

With regard to the availability of resources required for tax audit, the responses of Officials for
interview questions did not showed scarcity and shortages in this regards. According to the responses
of those Officials, Oromia Revenue Authority was arranged and organized tax audit function using
appropriate software required for tax audit at Head Office level. Moreover, they responded that,
materials and equipment’ required for tax audit programs at Head Office of Oromia Revenue
Authority were sufficiently availability. On the other hands, they reflected that, the issue of having
sufficient human resources needed for tax audit at regional level was not fully available to perform
tax audit activities at all Taxpayers’ business firms.

62
Regarding proficiency and competency of tax auditors, interviewees were asked to explain the
competency of Tax Auditors currently working at Head Office of Oromia Revenue Authority.

According to the results of interview responses, tax auditors were employed and assigned at Head
Office of Oromia Revenue Authority basically on their level of education and experiences (audit
related work experience is more preferable to assign them on Auditing job position). Additionally,
the interviewees were also stated that, every recruited Tax auditor's should have good ethical
behavior. Moreover, they stated that, most of the time they were assigned to current job position
through internal transfer and promotion than recruiting new Tax Auditor from labor market.

According to the responses of those Officials, most of the time, a person assigned on Tax Auditor
job position is expected to graduate in Accounting field of studies. However, when individuals with
Accounting was not available, the Office was forced to assign others who was qualified in the field
of studies like Public Administration, Management, Business Administration, Development
Management, and other graduates on Tax Audit job position.

Those interviewees further stated that, at the time of assignment, all individuals employed and
assigned on Tax Audit Job position are expected to attend training regarding government policies
and strategies, tax related rules and regulations, and certain basic theories of audit for a week.
Nevertheless, the officials revealed that there is no a well-established strategies that make Tax
Auditors competent and efficient on their job on continuous bases.

Regarding Tax auditors’ ability, they said that, tax auditors have not standardized knowledge
regarding clarification of unclear tax rules and regulations, and are incoherent in giving information
regarding identical tax issues. In addition, tax auditors lack willingness to give advising services to
Taxpayers rather they simply intimidate them by raising the consequence of not being compliant.

With regards to extent of competency of the Auditors, the responses of the Officials disclosed
Moderate level of their competency in performing Tax Audit jobs at Head Office of Oromia Revenue
Authority. However, they agreed that, Tax Auditors were relatively made an attempt to work in
collaboration among themselves; and made effort to improve their knowledge and skills. The
responses of those interviews, however, not denied that, Tax Auditors currently working at Head
Office of Oromia Revenue Authority, were mostly focused to achieve their own personal matters
than major issues related to their job position and the attainment of objectives of the organization.

With regards to challenges that influence the practices of Tax Audit at Head Office of Oromia
Revenue Authority; the interviewees were asked to identify the major once. Accordingly they

63
identified the following as the most critical challenges that has been influencing the success of Tax
Audit practices at Head Office of Oromia Revenue Authority.

 Wrong perception of Taxpayers on the estimation of tax amount; they perceived as it was
inflated and unfair among similar businesses in the same proximity
 Taxpayers were consider illegal business practices as best way of doing business
 Absences of reliable and up-to-date data and records keeping among Taxpayers
 Weak coordinated efforts among sector offices of the Region engaged on Tax audit related
responsibilities
 Negative attitude towards tax paying practices among Taxpayers
 Rumor on traditions of Corruption among Tax Auditors and Taxpayers
 Weak understanding of tax related rules and regulations among Taxpayers
 Taxpayers are not cooperative to give proper information for tax auditors
 Lack of competence and unethical behavior observed among Taxpayers
 Lack of qualified human resource from labor market (particularly Tax Auditors)
 Frequent disruption of Electric power supply

According to the responses of those Officials, most of the challenges encountered Tax Audit
practices at Head Office of Oromia Revenue Authority were associated with Taxpayers than Tax
Auditors, Organizational set-up of Oromia Revenue Authority, and Tax related rules and
Regulations.

4.2. Discussion
This section presents the analysis and interpretation of the results having the necessary data collected
and presented in section 4.1 to come up with meaningful patterns. Accordingly, the results obtained
under different methods are jointly analyzed to address each research question.

As stated in the literature review, a tax audit is an examination of whether a taxpayer has correctly
assessed and reported their tax liability and fulfilled other obligations. These issues will include any
indications of significant unreported income or potentially over-claimed deduction items that may
be apparent from an examination of a taxpayer’s tax return and other information (OECD 2006a).
So, Tax Audit become a bridge that is believed to connect Taxpayers with the tax authority. And it
could also fill the gap by exposing tax evaders and teaching those that have knowledge gap on the
tax laws. Thus, the major purpose of this study was to assess the practices and challenges of tax
audit at Head Office of Oromia Revenue Authority.

64
In order to achieve the objective of the study, a primary data were collected from Taxpayers, Tax
Auditors and Officials from Head Office of Oromia Revenue Authority using questionnaire and
interview. The questionnaires were initially distributed to a total of 259 respondents and 245
(94.59%) of them were appropriately filled and returned. Moreover, the interview was administered
with Deputy Head, Tax Audit Director and Tax Auditors Coordinator of Oromia Revenue Authority.

Among those respondents the number of female respondents accounts only 22.54% of Taxpayers
and 28.13% of Tax auditors. With regards to their age, majority of the respondents were found
between 30-50 years old. Concerning their educational backgrounds most of them (78.13%) were
with bachelor degree level of education. Moreover, most of the respondents’ work experiences was
lie above five years (75.51%). Concerning their business types, the result indicated that, those
Taxpayers from Construction sector accounts largest percentage share (46.01%); followed by Trade
(24.88%) and Service sector (17.37%). In this regards, according to the data obtained from Oromia
Revenue Authority information Desk, those investors licenced at Regional level and worked at
different zones and district of Oromia are assigned to pay a tax at Head Office level. Consequently,
the highest number of Taxpayer from Construction sector may be associated with the notion that,
construction industry is highly developing at present time in the country and the Region.

4.2.1. Tax Audit Practices

At the initial parts of the questionnaire and interview respondents were asked to reflect their view
about the ultimate goals of carrying-out Tax Audit at Head Office of the Authority. Accordingly,
the findings of this study indicated that, overall practices of Oromia Revenue Authority to achieve
ultimate goals of Tax Audit at Head Office was found at moderate level (µ=3.29). However, among
the items included as major objectives of Tax Audit; increasing government tax revenue, and
detecting tax evasion and avoidances were identified as the top-two objectives contributed more
than the remaining other goals of Tax Audit practices at the Authority. On the other hand, the
practices in the Region was less contributed for the success of Tax Audit objectives in offering
training for Taxpayers, and creating deterrent effect on non-compliant Taxpayers.

Moreover, interview responses also showed that, the purpose of tax audit is primarily to properly
collect government tax revenue; to increase the compliance level of Taxpayers’ to the tax laws; and
to detect tax evasion and avoidances among Taxpayers. Further, interview responses showed that,
the Head Office used tax audit as a compliance enforcement tool to collect unpaid taxes from
Taxpayers and to encourage Taxpayers to voluntarily discharge their tax obligations.

65
In relation to this, as stated by Barreca and Ramachandran (2004), the purpose of tax audit is to
check the evasion of tax and ensure compliance in accordance with the laws and regulations.
Moreover, as indicated on Tax Audit Booklet of the Authority, taxation has been used for the
purpose of raising as much revenue as possible to meet the ever-expanding public expenditure needs
of the government. It is also used as a mechanism for reduction of inequalities in income distribution,
promotion of capital investment and trade, encouraging certain industries depending on how suitable
for country’s economic development program (Lemmesa, et.al, 2012).

Another question raised for the respondents was concerned about major activities carried out by the
Tax Auditors at the Authority while conducting a tax audit. With regards to this, the findings of this
study showed moderate level of performance for majority of Tax Audit activities identified by the
respondents. Only one item was rated by respondents about higher level of practices at the Head
Offices of the Authority. Accordingly, the practices of gather information on the health of the tax
system including compliance behavior (µ=4.04) was better performed by Tax Auditors of the Region
than other activates expected from the Auditors. Next to this, an activities of Tax Auditors of the
Region was relatively better in searching for unregistered Taxpayers (µ=3.34).

On the other hand, the results showed that out of all items identified by respondents; providing
training for Taxpayers (µ=2.37); and detecting noncompliance behavior of individual taxpayer
(µ=2.76) were rated as they were not sufficiently performed by Tax Auditors of the Authority at
Head Office level. This means, Tax Auditors of the Region are not made sufficient efforts to create
Taxpayers’ awareness that might help Oromia Revenue Authority to increase voluntary compliance
of Taxpayers to mitigate future compliance risks at its Head Office level. This may lead to lower
level of Taxpayers’ awareness and to be incapable to understand the stated tax rules and regulations
as well as the forms and instructions provided by Head Office of the Authority.

Moreover, an interview responses also indicated similar answer with respondents of the
questionnaire. They said that, Tax Auditors were strong in gathering and collecting information on
health of the tax system than other tasks of Tax Audit expected to be practiced at Head Office of the
Region.

In relation to this as argued by Sarfo (2015),Tax Auditors at any level is expected to perform major
activates like: detecting noncompliance behavior of individual taxpayer; gather information on the
health of the tax system including compliance behavior; providing training for Taxpayers;
explaining complex tax rules and regulations for Taxpayers; and other similar tasks. Besides these
fundamental roles, tax auditors also have to interpret complex provisions of the tax laws, carry out

66
thorough examination of the records of the taxpayer, as well as engage in numerous interactions
with them, since the auditors represent the tax revenue body. However, the practices at Head
Office of the Authority had not showed efficient performance in implementing those activities.

In relation to types of Tax Audit, Tax Auditors who participated from Head Office of the Region
were rated Comprehensive Audit (µ=4.25); Field Audit (µ=4.19); and Desk Audit (µ=4.03) 1st to
3rdlevel respectively. This indicated that, the practices of Tax Audit at Head Office of the Region
was primarily emphasized on a comprehensive examination of all information relevant to the
calculation of a taxpayer’s tax liability for a given period. Such auditing may cover all tax
obligations over a number of tax periods, or extended to several years up to the limit provided in the
law. According to the results of this study, next to this Type of Tax Audit, the practices of Tax Audit
at the Authority most of the time gave attention to a detailed examination of taxpayer’s books and
records to determine whether the correct amounts were reported on the tax returns. In such type of
Tax Audit (Field Audit), the audit is conducted at Taxpayers place of business, home, or at the office
of their accountant, attorney, or other person who may represent them.

Furthermore, the practices of Tax Audit at Head Office of the Authority put emphasis on Desk audit
which usually carried out annually and primarily based on a review of income tax and VAT returns,
or basic ratios comparing with previous periods or other Taxpayers in similar industries; and the
crosschecking of information included in the taxpayer files.

On the other hands among the types of Tax Audit identified in this study, Registration Audit
(µ=2.91); and Refund Audit (µ=2.63) were not sufficiently practiced at the Authority. This indicated
that, undertaking a pre-refund audit to verify the taxpayer’s entitlement to a refund prior to
processing a first refund claim were not get proper attention at the Authority. Moreover, the practices
at Head Office level does not give attention for performing Registration Audit, which is an
unannounced visits to taxpayer’s premises for new enterprises to detect businesses operating outside
the tax system. That is, the practices of Tax Audit at the Authority was not properly focused on those
Taxpayers groups to ensures that the taxpayer has a basic understanding of their obligations; keeps
appropriate records; and issues proper invoices required by law.

In addition, the responses obtained from interview also showed that, Comprehensive Audit, Field
Audit, and Desk Audit were frequently performed by Tax Auditors at Head Office of Oromia
Revenue Authority. They further explain that, the practices of Tax Audit at Head Office of the
Region was primarily emphasized on a comprehensive examination of all information relevant to

67
the calculation of a taxpayer’s tax liability for a given period. In such type of Tax Audit, the objective
is to determine the correct tax liability for a tax return as a whole.

Concerning this according to OECD (2006a), given that audits can vary in terms of their scope and
intensity revenue bodies should have a clear policy on the types and numbers of audits to be
conducted, and the circumstances in which specific types of audits are to be carried out, so that audit
officials understand what is expected of them.

Regarding the criteria usually used for Tax Audit selections, the results of this study indicated that,
amount of annual profit declared by Taxpayers and possible amount of tax to be collected (µ=4.41);
evasion and fraud related information on Taxpayer (µ=4.38); long years of establishment of
Taxpayers business firm (µ=4.19); presences of Taxpayers associated compliance risks (µ=4.16);
frequency of Taxpayers complain on tax related issues (µ=4.13); and Taxpaying trends of the
Taxpayers (µ=4.09) were identified as the top-six major criteria practiced at Head Office of the
Region.

On the other hand, issues like proportionality of the types and number of business sectors of the
Taxpayers (µ=3.09); Taxpayers reporting on tax returns less than previous period return (µ=3.06);
orders given from officials of the authority (µ=2.81); informal relationship the Taxpayers has with
officials of the Authority (µ=2.72); and using simple random sampling technique (µ=2.69) were not
frequently used as Tax Audit selection criteria at Head Office of the Authority.

Furthermore, the results of interview administered with Officials also showed that, Taxpayers have
been selected based on their associated compliance risk for audit. The interview respondents further
stated risk criteria that include: the trend of delay in tax payment, non-filing tax returns, nil tax
declaration, showing abnormal and repetitive loss report, profits significantly deviated from
previous periods, report of too deviated margin from the sector, over claimed deductions, unusual
credit, and past case histories of the Taxpayers’. The interview results further confirmed that, the
potential amount of tax revenue that might be found with the target taxpayer and the capability of
that particular taxpayer to pay tax owed have been considered to perform an audit work.

These clearly showed that the criteria used to select Taxpayers business firm for Tax Audit at the
Office were focused on information obtained from Taxpayers rather than systematically organized
strategies designed by the Authority.

In this regard, as stated by Barreca and Ramachandran (2004), it is critical to select audit candidates
consistent with program objectives. Whatever the audit objectives have, the ability to narrow the

68
pasture of potential audit candidates is necessary to achieve program objectives and optimal use of
audit resources. So, Tax audit effectiveness would not be realized under the selection of
inappropriate audit candidates (Taxpayers’ business firm). Hence, managing an effective auditing
program involves decisions as to the selection of best audit case strategy or combination of
strategies.

However, according to the findings of this study, the current practices of Tax Audit at Head Office
of Oromia Revenue Authority was not significantly regarded as an important means of promoting
excellences in Tax Administration and revenue collection of the Region.

In relation to Techniques of Tax audit, the findings of this study indicated that, all Tax audit
techniques were to some extent practiced at Head Office of Oromia Revenue Authority. However,
the practices of using Analytical Review, that is, reviewing financial statements and returns to test
the accuracy of Taxpayers' reported sales, cost of sales, or ending inventory (µ=4.09); and
Counterpart Examination: a technique of examination performed based on third party information
to verify the taxpayer’s income (µ=3.66) were relatively practiced higher than the remaining three
Tax Audit techniques. Moreover, a Tax audit Techniques known as Record Examination: which
include the examination of books and documents conducted at the taxpayer’s business office or
branches, and examination of savings and deposit accounts (µ=3.41) was also identified as it was
moderately practices at Head Office of the Authority.

On the other hands, a Tax Audit technique known as Field Examination, which include on sight
survey of the current conditions of the taxpayer’s business through physical checks of original
transaction records and vouchers, assets and liabilities and other aspects of the business (µ=2.31);
and Investigative Approach: an approach that uses information obtained through observation,
discussion, documents or records obtained from either the taxpayer or other sources using
information outside the accounting records to perform the audit (µ=2.19) were not practiced as that
of other Tax Audit techniques at Head Office of the Authority.

In similar manner, the responses of interview respondents also showed that, all types of Tax Audit
techniques were practiced at Head Office of the Region. Nevertheless, the practices of reviewing
financial statements and returns of the Taxpayers to test the accuracy of reported sales, cost of sales,
or ending inventory; and a technique that focuses on examining a third party information to verify
the taxpayer’s income were relatively practiced more than other techniques.

In relation to this most authors agreed that, in responsible organizations a tax auditor applies various
techniques to examine the books and records behind a return. The techniques to be used depend on

69
the taxpayer and the tax regime concerned. According to OECD (2006a), the techniques frequently
used for audit examination purposes include analytical review, field examination, record
examination, investigative approach, and counterpart examination. However, Biber (2010) noted
that, an effective case plan can be cognizant of a range of investigative and analytical approaches
that may vary depending upon the area of risk and the circumstances of the particular taxpayer.

In this regards the findings of this study indicated that, the practices of Oromia Revenue Authority
at Head Office level did not proportionally focused on all types of Tax Audit techniques. Particularly
on sight survey of the current conditions of the taxpayer’s business through physical checks of
original transaction records; and an approach that uses information obtained through observation,
discussion, documents obtained from either the taxpayer or other sources were not usually practiced
as other Tax Audit techniques by Head Office of Oromia Revenue Authority.

Concerning planning of tax audit activities; which consists of a detailed proposal of activities to be
performed in the scheduled timeframe; the results this study showed that, the practices at Head
Office of Oromia Revenue Authority was very much different from basic facts and principles.
According to the results of this study, most of the respondents were not agreed the practices of using
schedules for all Taxpayers that included the announcement of Tax audit works to be started and
completed within a predetermined timeframe by tax auditors of the Authority. Only 29.80% of the
respondents were agreed the presence of such schedules at Head Office. This indicated that, most of
the time Tax Audit activities were done without schedules, unplanned and carried out arbitrarily.

Similarly, interview responses of the officials were not strongly approved the practices of frequent
utilization of schedules for Tax audit works at taxpayers firms. Nevertheless, they responded that,
there were a practices of having and using annual plan for Audit activities at department and work
unit levels.

Overall, these showed that, the Authority failed to recall the fact that, every work units in any
organization should have a set of actions that will be performed in the journey of achieving its goals
and objectives; and Tax Audit activities be scheduled to effectively perform the intended objectives
of the organization and to work Tax Audit activities in accordance with rules and regulations at
Taxpayers business firms.

Regarding frequency of Tax Audit to be carried-out at every business firms of a Taxpayers;

respondents' rating results of the actual practices at Head Office of Oromia showed that, on average
a Taxpayers’ businesses firm was audited once within three years (40.41%). Yet 19.18% of the
respondents were responded as the businesses firm were audited once within five years. Only

70
13.06% of the respondents were agreed the frequency of Tax Audit carried-out at every businesses
firm was once every budget year. In relation to this, an interview responses of the Officials was not
indicated specific time-frame and frequencies by which every Taxpayers’ business firm was audited.
They responded that, as much as possible some of the taxpayers were audited annually or once
within two years. They also replied, as it was difficult to describe the frequency of Tax Audit
practices carried-out at business firms of every Taxpayers.

In this regard, as stated by Regional Government’s internal regulation, formally any business firm
of a Taxpayer should be audited every fiscal year. However, when the actual practices at Head Office
of Oromia Revenue Authority is compared with such facts; greater discrepancy were observed.
About 80% of the respondents were responded as the frequency of Tax Audit performed at every
business firms’ of the Taxpayers was every two or three; even more than five years. Subsequently,
if Taxpayers business firm were not audited at the required timeframe, large amount of Government
revenue may not collected at the time they should be collected from the Taxpayers. This intern may
influence development practices of the country in general and the Region in particular.

With regard to the availability of resources required for tax audit, the responses obtained from
questionnaire and interview indicated that, the Authority was arranged and organized tax audit
function using appropriate digital technology required for tax audit at Head Office level. Moreover,
respondents were rated highest scores regarding the availability of enough materials and
equipment’s required for tax audit programs at Head Office of the Authority. On the other hands,
issues of having sufficient human resources needed for tax audit tasks at Head Office of the Region
was a problem. It was not fully available to perform tax audit activities at all Taxpayers’ business
firms. Overall, the results of this study clearly indicated that, out of all resources the Authority faced
short of human resources (Tax Auditors) than office facilities, equipment’s and digital technology
required for tax audit at Head Office level.

In general, overall practices of Tax audit at Head Office level of Oromia Revenue Authority was
rated by Taxpayers “Poor and Very Poor”. Only 4.23% and 8.92% of them were rated the practices
Excellent and Very Good respectively. The mean results (µ=2.63) of Tax Auditors rating also
confirmed below satisfactory level of Tax Audit practices at Head Office of Oromia Revenue
Authority. In sum, the overall mean score calculated for both groups of the respondents (µ=2.34)
further indicated as the practices of Tax audit at Head Office level of the Region was Poor. These
Tax audit curried-out at Head Office of the region was poorly practiced; calling strong attention of
all concerned bodies for its improvements.

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4.2.2. Tax Auditors’ Proficiency and Competency
Regarding proficiency and competency of tax auditors, respondents were asked to answer issues like
professional qualification, mode of assignment, trainings offered for Tax Auditors, and actual
competency of Tax Auditors currently working at Head Office of Oromia Revenue Authority.

With regards to professional qualification of Tax Auditor assigned at Head Office of the Authority,
the results of this study showed that, more than half of them (57.58%) were from non-Accounting
field of studies. Those Tax Auditors qualified with Accounting field of studies accounts only 42.42%
of the Tax auditors currently working at Head Office of Oromia Revenue Authority. The remaining
Tax Auditors were studied Management (15.15%), Public Administration (12.12%), Business
Administration (9.09%), Economics (6.06%) and Development Management (6.06%).

In this regards, according to information obtained from Oromia Public Service and Human Resource
Development Bureau, a Job specification for Financial Auditors requested qualification in
Accounting and relevant work experiences in the areas of Auditing. However, contrary to this,
majority of individuals were assigned as Tax Auditor in the region were with a qualification from a
field of studies not directly related with their job (Tax Audit).

Moreover regarding mode of Assignment of the Tax Auditors', the results of this study indicated
that, majority of Tax Auditors were assigned to their current jobs through internal transfer (43.75%).
Additionally, some of them were assigned by recommendation of Authorities of the Region and
through internal promotion held at Head Office of Oromia Revenue Authority. The results of this
study further indicated that, the number of newly employed Tax Auditors and assigned at the job
position accounts only 6.25% of all Tax Auditors. This indicated that, the practices of getting and
having new Tax Auditors at Head Office of Oromia Revenue Authority was negligible.

Concerning trainings offered for Tax Auditors’ working at Head Office of the Authority; the
findings of this study confirmed that, majority of the respondents did not attended any training
programs related to their job during the past two years of their services at the Office. Only 40.63%
of them agreed their participation on one training program during the mentioned years. With regard
to topics of the training, they mentioned topics like utilization of Tax Audit manuals, Auditing using
SIGTAS software, Program Budgeting, and the application Balanced Scored Cared.

In relation to this as argued by Armstrong (2009) training strategy should considered as an integral
part of the management process which in turn requires managers to review regularly with their teams
performance in relation to agreed objectives. A training provided by employer is critical for
employees to accomplish their jobs efficiently and to determine whether or not they would stay with

72
their current organization. Furthermore, a Civil Servants Proclamation No. 515/2007 (article 57)
also stated that; a government institution must identify training needs of the institution and make the
civil servants to receive the necessary training to improve their capability and attain better
performance or to prepare them for higher responsibility.

But, the results of this study showed that, the participation of Tax Auditors of the Region on different
training programs was very low; which denied the fact that, training activities in an organization
should be an ongoing process that could be offered for new, old, transferred and promoted
employees. Yet, interview results obtained from Officials responses also revealed that, there is no a
well-established strategies that make Tax Auditors competent and efficient on their job through
offering training on continuous bases.

With regards to competency and behavior of the Tax Auditors, Oromia Revenue Authority's
employees management regulation (Reg. 160/2012) stated that, an employee who would be assigned
on Tax Audit job position is expected to have a behavior and competency like: sufficient
understanding and knowledge on tax related rules and regulation; positive attitude towards
Taxpayers; team-work and working in collaboration with others; making continuous effort to
improve their knowledge and skills; appropriately serving and solving Taxpayers’ problems; and
free from partiality and neutrality at work place.

Regarding this, the results of this study identified moderate level of Tax Auditors’ competency
(µ=3.01) in performing their current jobs at Head Office of Oromia Revenue Authority. However,
they are relatively better with regards to working in collaboration among themselves; and efforts
they made to improve their knowledge and skills. On the other hands, the least rating result was
identified regarding properly serving and solving Taxpayers’ problems; and having positive attitude
towards Taxpayers. Interview respondents also said that, tax auditors have not standardized
knowledge regarding clarification of unclear tax rules and regulations, and are incoherent in giving
information regarding identical tax issues. They also stated that, tax auditors lack willingness to give
advising services to Taxpayers rather they simply intimidate them by raising the consequence of not
being compliant. With regards to extent of competency of the Auditors, the responses of the Officials
disclosed Moderate level of their competency in performing Tax Audit jobs at Head Office of
Oromia Revenue Authority.

In general the responses obtained from the respondents indicated that, Tax Auditors were
comparatively focused and had the ability to achieve personal matters than major issues related to
their job position and objectives of the organization.

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4.2.3. Major Challenges of Tax Audit Practices
With regards to challenges that influence the practices of Tax Audit at Head Office of Oromia
Revenue Authority; the respondents were asked to identify the major once. Accordingly they
identified the most critical challenges that has been influencing the success of Tax Audit practices
at Head Office of the Authority. It includes: Traditions of Corruption; Inflated estimation of tax and
unfair volume of tax among similar businesses in the same proximity; Not properly responding the
compliance of Taxpayers on time; Taxpayers were consider illegal business practices as best way
of doing business; Absences of reliable and up-to-date data and records keeping practices among
Taxpayers; and Absences of Coordinated efforts among sector offices of the region engaged on Tax
audit related responsibilities.

Moreover, the results further showed that, negative attitude towards tax paying practices among
Taxpayers; limited capacity of management and leadership on the part of Oromia Revenue
Authority; and inconsistency and frequent changes of regulations related to Tax audit practices were
moderately affect the practices of the tax audit in the Region.

Besides, challenges like inadequacy of resource and facilities required for Tax Audit; lack of clarity
of policy and regulations regarding Tax Audit; improper work environment and poor office
arrangements for Tax Audit practices were recognized as the least factors among all items identified
in this study. However, their rating results indicted moderate level of their influence on the practices
of Tax Audit in the Region.

4.3. Concluding Remarks

The chapter has presented the results and analysis of the study along with the presentation of research
objective and questions in three sections.

The first section has presented the outcomes of both qualitative and quantitative research methods
adopted in the study separately. Specifically, the results of surveys with Tax Auditors and
Taxpayers, and in-depth interviews conducted with officials of Oromia Revenue Authority were
presented. The results obtained through these instruments were employed to investigate the practices
and challenges of tax audit at Head Office of Oromia Revenue Authority with particular emphases
on the types of tax audit frequently performed; tax audit case selection methods used; audit
techniques applied; frequency of audit performed; adequacy of tax audit resources; and extent of tax
auditors’ proficiency and competency. The findings of all data collection methods were consistent
with the exception of slight difference between survey and in-depth interview results regarding some
challenges to the practices of Tax Audit at Head Office of Oromia Revenue Authority.

74
In the second section, the results of all methods were combined by pooling them together and
analyzed concurrently in order to address the research objectives and basic research questions. The
discussion were made in line with the literature review presented in chapter two and the realities in
the study area.

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 CHAPTER FIVE

5. CONCLUSIONS AND RECOMMENDATIONS

This chapter deals with conclusions drawn from the findings of the study and recommendations
forwarded in order to improve the practices and alleviate challenges of Tax Audit at Head Office of
Oromia Revenue Authority.

The chapter is structured in three sections. The first section deals with conclusions; whereas the
second section presents recommendations suggested to alleviate the problems identified in the study.
The third part presents main ideas related to future research direction.

5.1. Conclusions

Based on major findings of the study; the following conclusions are made.

Regarding the practices of Tax Audit at Head Office of Oromia Revenue Authority, the findings of
this study indicated that, overall practices to achieve ultimate Goals of Tax Audit was found at
moderate level. The practices did not sufficiently contributed for the success of Tax Audit objectives
in offering training for Taxpayers and creating deterrent effect on non-compliant Taxpayers.
Moreover, Tax Auditors were not made sufficient efforts to create Taxpayers’ awareness that might
help Oromia Revenue Authority to increase voluntary compliance of Taxpayers to mitigate future
compliance risks at its Head Office level. They usually focused on gathering and collecting
information on health of the Tax system including compliance behavior of the Taxpayers. This
indicated that, the current practices of Tax Audit at Head Office of Oromia Revenue Authority was
not regarded as an important means of promoting excellences in Tax Administration and revenue
collection of the Region.

In relation to the utilization of Tax Audit techniques, the findings of this study indicated that, the
practices of Oromia Revenue Authority at Head Office level did not proportionally focused on all
types of Tax Audit techniques. Particularly on sight survey of the current conditions of the
taxpayer’s business through physical checks of original transaction records; and an approach that
uses information obtained through observation, discussion, documents obtained from either the
taxpayer or other sources were not usually practiced as other Tax Audit techniques. Concerning
planning and scheduling of Tax Audit at Taxpayers’ business firm, the findings indicated that, most
of the time Tax Audit activities were done without schedules, unplanned and carried out arbitrarily.
These confirmed that, Oromia Revenue Authority fail to recall the fact that, every work units in any

76
organization should have a set of actions that will be performed in the journey of achieving its goals
and objectives. Regarding frequency of Tax Audit to be carried-out at every business firms of a
Taxpayers; the findings of this study identified as it was performed every two or three; even more
than five years. If the Taxpayers business is not audited at regular at the end of fiscal years, they
may exposed to higher level of penalty and does not allowed to correct certain errors on-time.
Likewise, large amount of Government revenue may not collected at the time they should be
collected from the Taxpayers. This intern may influence development practices of the country in
general and the Region in particular.

In general, the findings of this study indicated that, the practices of Tax audit at Head Office level
of the Region was poorly practiced. From these it is possible to conclude that, the practices at Head
Office of Oromia Revenue Authority could not motivate Tax Audit performance have been takes
place at Zone, City Administration and Districts of the Region. This may lead to the problems of
deteriorating effect of Tax collection and Tax Administration practices at all level of the Region;
which can resulted difficulty to achieve the major objective of taxation in the Region in particular
and the Country at Large.

Regarding proficiency and competency of Tax Auditors, the findings of this study indicated that,
most of them were from non-Accounting field of studies; and majority of them were assigned to
their current jobs through internal transfer, and by recommendation of Authorities of the Region.
The number of newly employed Tax Auditors accounts only 6.25% of all Tax Auditors. Moreover,
majority of the Auditors did not attended any training programs related to their current job during
the past two years of their services at Head Office of the Region. Yet, the results of this study
revealed that, there is no a well-established strategies that make Tax Auditors competent and
efficient on their job on continuous bases. As a results proficiency and competency level of Tax
Auditors’ was found at moderate levels. They were focused to achieve their personal matters than
major issues related to their job position and objectives of the organization. If so, it is hard to expect
efficient performances regarding Tax Audit practices at Head of the Region. From these it is possible
to conclude that, assignment and work performance of Tax Auditors was at risk. If correction
measure is not taken on time the current situation will strongly lead to weak performance on Tax
Audit practices at Head Office of Oromia Revenue Authority.

Regarding challenges that influence the practices of Tax Audit at Head Office of Oromia Revenue
Authority; the findings of this study identified factors related with Traditions of Corruption; inflated
estimation of tax amount on Taxpayers; not responding the compliance of Taxpayers on time;

77
Taxpayers were consider illegal business practices as best way of doing business; and absences of
Coordinated efforts among sector offices of the region engaged on Tax audit related responsibilities.
Moreover, the results showed that, negative attitude towards tax paying practices among Taxpayers;
and limited capacity of management and leadership on the part of Oromia Revenue Authority were
also affecting the practices of the Tax Audit in the Region. This indicated that Tax Audit practices
at Head of the Region were associated with problems arises from multiple sources. From this one
can concluded that there were ignorance to solve Tax Audit related problems and challenges on the
part of Officials and Tax Auditors at Head Office of Oromia Revenue Authority. This strongly calls
the attention of all concerned bodies to be aware of the consequences and make efforts to alleviate
the problems. If not it will continue affecting Offices of the Region, the society, local and regional
government in particular and the country at large.

5.2. Recommendations

On the bases of major findings of this study and the conclusions made; the following
recommendations were forwarded to improve the practices of Tax Audit at Head Office of Oromia
Revenue Authority.

1) Assigning competent and qualified individuals on Tax Audit job positions: According to the
finding of this study, inefficiency and lack of competency among Tax Auditors of the office
have been affecting efficiently performing duties and responsibilities to be accomplished by
them at Head Office of Oromia Revenue Authority. Moreover, most of them were from non-
Accounting field of studies; and majority of them were assigned to their current jobs through
internal transfer, and by recommendation of Authorities of the Region. So, Oromia Revenue
Authority have to work to assign those individuals competent and qualified on Accounting
filed of studies on Tax Auditor job positions is highly recommended. Moreover, it is better if
the Authority gave attention for the employment of new Tax Auditors from labor market by
developing a ladder structure for Tax Auditors job position in collaboration with Oromia
Public Service and Human Resource Development Bureau; which may encompasses Junior,
Senior and other levels of Tax Auditors’ job grades.
2) Organizing training and awareness creation programs: According to the findings of this
study, majority of the Auditors did not attended any training programs related to their current
job during the past two years of their services at Head Office of the Region. Yet, the results of
this study revealed that, there is no a well-established strategies that make Tax Auditors
competent and efficient on their job on continuous bases. As a results proficiency and

78
 competency level of Tax Auditors’ was found at moderate levels. They were focused to
achieve their personal matters than major issues related to their job position and objectives of
the organization. So, arranging capacity building training on topics related to the practices of
Tax Audit is recommended for the Auditors. In Addition arranging experience sharing
program with Federal and Regional Revenue Authority become important to improve the
current practices of Tax Audit at the Region. Moreover, it is advisable providing education to
the tax payers on continues bases to create awareness about their rights and obligations so as
to build and develop a citizen who has better value for paying a tax.
3) Developing and Using Annual Schedule of Auditing for Taxpayers Business Firm: With
regards to planning and scheduling of Tax Audit at Taxpayers’ business firm, the findings of
this study indicated that, most of the time Tax Audit activities were takes place without
schedules arbitrarily. Moreover, regarding frequency of Tax Audit to be carried-out at every
business firms of a Taxpayers, the findings of this study identifies as it was not performed
regularly on scheduled manner. As a result, Taxpayers were frequently exposed to higher level
of penalty they were not allowed to correct the errors on-time. Therefore, to overcome such
deficiencies it is highly recommended if the Head Office of Oromia Revenue Authority
strengthen the issue of Developing and using annual schedule of Auditing among Taxpayers
Business Firm.
4) Integrating sector offices’ efforts and Maximizing Transparency among them: As identified
in this study, among major challenges Tax Audit practices at Head Office of Oromia Revenue
Authority; Traditions of Corruption, inflated estimation of tax amount on Taxpayers, not
responding compliance of Taxpayers on time, and absences of coordinated efforts among
sector offices of the region engaged on Tax audit related responsibilities (like Finance and
Economic Development Bureau, Trade and Industry, General Audit, and Justice Bureau) were
critical. In order to minimize such challenges and increase efficiency of Tax Audit practices
at the Region; it is better if the efforts of sector offices engaged on Tax Audit related functions
were integrated and level of Transparency among them was maximized by Oromia Regional
State.
5) Arranging an Annual Forum: Scheduling discussion forum will increases understandings of
major factors affecting the success of Tax Audit and facilitate strategic development among
sector offices and Tax Payers in the Region. So, it is advisable if an annual forum on Tax
Audit Practices is conducted at the Regional level with the participation of representatives
from relevant federal, regional, and local offices; management organs and Tax Auditors from

79
 the Authority; professionals from higher education institutes, consultants and researchers in
the area of Tax Audit and Tax Administration.

5.3. Future Research Direction

Though the findings of this study identified major challenges that affect the practices of Tax Audit
at Head Office of Oromia Revenue Authority, there may be other specific problems not assessed
through this study. So, to identify such factors and to take proper actions on time; it is advisable if
further research is conducted at Regional level including all City Administration and Districts of the
Region on issues related to the implementation of Tax Audit.

80
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Appendices

86
 Appendix A: Questionnaire to be filled by Tax Auditors
Addis Ababa University
College of Business and Economics
Department of Accounting and Finance
Questionnaire to be filled by Tax Auditors

Dear Participants
The title of this thesis is “TAX AUDIT IN OROMIA REVENUE AUTHORITY: PRACTICES
AND CHALLENGES.” The name of the researcher is Tesfaye Bekele who is currently an MSc in
Accounting and Auditing student in Addis Ababa University.

The aim of this project is to assess the practices and challenges of tax audit in Oromia Revenue
Authority. This questionnaire is prepared to supplement the data obtained from other sources.

This survey questionnaire is being distributed to get relevant information from randomly selected
respondents and participation is totally voluntary. The investigator respectfully requests your kind
cooperation in answering the whole question as frankly as possible and your response will be
recorded anonymously and strict confidentiality will be maintained.

For further information, please contact using the following address:

Tel. (mobile): +251 911993237

E-mail: bonsa2006@gmail.com
Thank you in advance for your cooperation and genuine response!
Part I: Background information of the Respondents
1. Gender: Male 1 Female 2
2. Age: Less than 30 years 1 31-40 years 2 41-50 years 3
Above 51 years 4
3. Educational Background:
Qualification Responses Remarks
1 Certificate
2 Diploma
3 Bachelor's Degree
4 Master's Degree
5 Others (Specify)

87
 4. Your work experiences

No Duration: Responses Remark

1 1-5 Years
2 6 -10 Years
3 11 – 15 Years
4 Above 15 Years

5. Current Position:
Tax Auditor 1 Tax Audit team leader 4
Tax Investigator 2 Tax Audit Director 5
Tax Assessors 3 Others (Please specify) 6
6. How did you assigned to the current job position?
Newly Employed 1
Internal Promotion 2
Transfer from other organization 3
Internal/Horizontal Transfer 4
Recommendation of authorities’ 5
Demotion 6
Others (Identify) ________________ 7

Part II: Tax Audit Practices

2.1. Goals of tax and major activities tax auditors
7. In your view the ultimate goals of the tax audit Strongly Strongly
Disagree Neutral Agree
program at the Oromia Revenue Authority are: disagree agree
7.1 Increasing government tax revenue 1 2 3 4 5
Increasing the compliance level of taxpayers’ to the 1 2 3 4 5
7.2
tax laws
Creating deterrent effect on non-compliant 1 2 3 4 5
7.3
taxpayers
7.4 Detecting tax evasion and avoidances 1 2 3 4 5
7.5 Training the taxpayers 1 2 3 4 5
7.6 Others (please specify) 1 2 3 4 5

88
 In your view, the major activities tax
8. Strongly Strongly
auditors usually perform during a tax audit disagree Disagree Neutral Agree
agree
period are:
Detecting noncompliance behavior of 1 2 3 4 5
8.1
individual taxpayer
Gather information on the health of the tax 1 2 3 4 5
8.2
system including compliance behavior
8.3 Training taxpayers 1 2 3 4 5
Interpreting complex tax rules and 1 2 3 4 5
8.4
regulations for taxpayers
Identify areas of tax law that require 1 2 3 4 5
8.5
clarification and amendment
8.6 Search for unregistered taxpayers 1 2 3 4 5
8.7 Others (please specify) 1 2 3 4 5

2.2. The Types of Tax Audit Frequently Performed

9. Among the following types of Tax
Audit; please, indicate the extent of Strongly Strongly
Disagree Neutral Agree
practices in Oromia Revenue disagree agree
Authority using the scales
9.1 Desk Audit 1 2 3 4 5
9.2 Field Audit 1 2 3 4 5
9.3 Comprehensive Audit 1 2 3 4 5
9.4 Issue audit 1 2 3 4 5
9.5 Advisory audit 1 2 3 4 5
9.6 Registration Audit 1 2 3 4 5
9.7 Refund Audit 1 2 3 4 5
9.8 Fraud investigation 1 2 3 4 5
9.9 Other (please specify) 1 2 3 4 5

10. What are the conditions usually used by Oromia Revenue Authority to select any types of Tax
Audit?
_______________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
_______________________________________________________________

89
 2.3. Audit Case Selection
In you view, the tax audit selection criteria usually Strongly Strongly
11. Disagree Neutral Agree
used by the Oromia Revenue Authority are: disagree agree
Amount of capital and high tax potential of 1 2 3 4 5
11.1
the tax payer
Long years of establishment of Tax payers 1 2 3 4 5
11.2
business firm
Amount of annual profit declared by Tax
11.3 payers and possible amount of tax to be 1 2 3 4 5
collected
Number of Human resources in the Tax 1 2 3 4 5
11.4
payers business firm
Taxpaying trends of the Tax payers:
through Statistical techniques using prior 1 2 3 4 5
11.5
tax audit results in conjunction with
taxpayer data
Level of taxpayer’s cooperation to give
11.6 essential information necessary for 1 2 3 4 5
performing an audit
Presences of Taxpayers associated 1 2 3 4 5
11.7
compliance risks
Frequency of Taxpayers complain on tax 1 2 3 4 5
11.8
related issues
Availability of required resource for tax 1 2 3 4 5
11.9
audit
Evasion and fraud related information on 1 2 3 4 5
11.10
tax payer
Through screening and case review; using 1 2 3 4 5
12.11
criteria set for this purposes
Through data mining techniques that
11.12 identifies patterns of noncompliance in the 1 2 3 4 5
past and current circumstances
Proportionality of the types and number of 1 2 3 4 5
11.13
business sectors of the tax payers
When taxpayers reported tax returns less 1 2 3 4 5
11.14
than previous period return
Automated risk scoring system that
11.15 identifies risk of noncompliance of the 1 2 3 4 5
taxpayers
Relationship of the tax payers has with
11.16 officials of the Authority (beneficial 1 2 3 4 5
relationship and nepotism)
Using simple random sampling technique 1 2 3 4 5
11.17
without any analysis
Simply by orders given from officials of 1 2 3 4 5
11.18
the authority
Audit knowledge of taxpayers behavior and 1 2 3 4 5
11.19
environment
11.20 Others (please specify) 1 2 3 4 5

90
 12. Would you please mention any other criteria and procedures used to identify taxpayers for tax
Audit? _____________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
__________________________________________________________
2.4. Tax Audit Techniques Applied
Please state your level of agreement or
13.
disagreement to the following statement about Strongly Strongly
Disagree Neutral Agree
the tax audit technique Oromia Revenue disagree agree
Authority uses
13.1 Analytical Review: A review of financial statements
and returns are often completed during the
preliminary stages of the audit. They are used to test 1 2 3 4 5
the accuracy of Taxpayers' reported sales, cost of
sales, or ending inventory
13.2 Field Examination: This include on sight survey of
the current conditions of the taxpayer’s business
through physical checks of original transaction 1 2 3 4 5
records and vouchers, assets and liabilities and other
aspects of the business
13.3 Record Examination: This include the examination
of books and documents conducted at the taxpayer’s 1 2 3 4 5
business office or branches, counterpart examinations
and examination of savings and deposit accounts
13.4 Investigative Approach: Such an approach uses
information obtained through observation,
discussion, documents or records obtained from 1 2 3 4 5
either the taxpayer or other sources. It requires
judgment, imagination and using information outside
the accounting records to perform the audit
13.5 Counterpart Examination: It is an examination
performed based on third party information to verify
the taxpayer’s income, for example: Financial 1 2 3 4 5
institutions and public companies information on
interest and dividends matched with what Taxpayers
report in their tax return

14. Any other tax Audit Techniques Applied other than listed in the above table.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________

91
 2.5. Frequency of Tax Audit Performed
15. Are there any schedules for all tax payers in Oromia Revenue Authority that requires Tax
audit works to be started and completed within a predetermined timeframe?

A) Yes B) No
If your answer is “YES” are they completed within a predetermined timeframe?
A) Yes B) No
If it was not completed within a predetermined timeframe, what do you think the reason for its
faller?
_______________________________________________________________________
___________________________________________________________________________
_______________________________________________________________
16. How frequently Tax Audit was performed for every business firms of the Tax payer by
Oromia Revenue Authority Tax auditors and assessors?
Every businesses were audited once a year 1
Every businesses were audited once within two years 2
On average all businesses were audited once within three years 3
Taxpayers that were audited in the previous audit period and found no tax liability during
an audit is not selected for the next audit 4
It is difficult to describe its frequency; they were selected randomly 5
Others (please specify) ______________________________________ 6

2.6. The Adequacy of Tax Audit Resources

17. Please, show your level of agreement for the Strongly Strongly
Disagree Neutral Agree
following items related to Tax Audit disagree agree
17.1 There were well organized structure and 1 2 3 4 5
suitable office for Tax audit functions
17.2 Tax audit has enough human resources to 1 2 3 4 5
perform audits on all taxpayers
17.3 There are enough material and equipment 1 2 3 4 5
required for tax audit program
17.4 Required budget for Tax audit was 1 2 3 4 5
sufficiently allotted every year
17.5 Computers and appropriate digital
technology required for tax audit are 1 2 3 4 5
accessed at Head office of the Authority

92
 18. In general, how do you evaluate the current practices of Tax Audit in Oromia Revenue
Authority; Head Office?

A). Excellent B). Very Good C). Good

D). Poor E). Very Poor

Part III: Tax Auditors’ Proficiency and Competency

19. Do you attain any training offered by Oromia/Federal Revenue Authority regarding tax audit

related issues in the recent past two years? A). Yes B). No
If your response is “YES”, please state topics of training and the years
___________________________________________________________________________
___________________________________________________________________________
How do you evaluate the competency of Tax
20. Very Very Excell
Auditors at Oromia Revenue Authority in Poor Good
Poor Good ent
terms of items listed as follows?
20.1 Understanding and Knowledge of Tax related 1 2 3 4 5
rules and regulation
20.2 Experience and capacity on Tax audit 1 2 3 4 5
functions
20.3 Attitude towards Tax payers 1 2 3 4 5
20.4 Team-work and working in collaboration 1 2 3 4 5
among themselves
20.5 Effort made to improve their knowledge and 1 2 3 4 5
skills
20.6 Properly Serving and solving problems of tax 1 2 3 4 5
payers
20.7 Impartiality and neutrality of Tax auditors 1 2 3 4 5

Part IV: Challenges of Tax Audit Practices

Challenge

Challenge

Challenge

Challenge

Challenge
Inconside

Moderate

How do you consider the following items as a

Minor

Sever

Sever
rable

Very

21. challenge to the practices of Tax Audit in Oromia

Revenue Authority?

Limited capacity of management and leadership

21.1 on the part of Oromia Revenue Authority on tax 1 2 3 4 5
audit administration
In adequacy of resource and facilities required for 1 2 3 4 5
21.2
Tax Audit
Absences of Coordinated efforts among sector
21.3 offices of the region engaged on Tax audit related 1 2 3 4 5
responsibilities

93
 Challenge

Challenge

Challenge

Challenge

Challenge
Inconside

Moderate
How do you consider the following items as a

Minor

Sever

Sever
rable

Very
21. challenge to the practices of Tax Audit in Oromia
Revenue Authority?

Improper work environment and poor office 1 2 3 4 5

21.4
arrangements for Tax audit practices
Lack of clarity of policy, regulations and legal 1 2 3 4 5
21.5
frameworks regarding Tax Audit
Inconsistency and frequent changes of regulations 1 2 3 4 5
21.6
and laws related to Tax audit practices
Inflated estimation of tax amount on tax payers
21.7 and unfair volume of tax among similar 1 2 3 4 5
businesses in the same proximity
Weak understanding of tax related rules and 1 2 3 4 5
21.8
regulations among Tax payers
Negative attitude towards tax paying practices 1 2 3 4 5
21.9
among tax payers
21.10 Lower level of tax payers' educational background 1 2 3 4 5
Tax payers were consider illegal business 1 2 3 4 5
21.11
practices as best way of doing business
Absences of reliable and up-to-date data and 1 2 3 4 5
21.12
records keeping practices among Tax payers
Tax payers are not cooperative to give proper 1 2 3 4 5
21.13
information for tax auditors
Oromia Revenue Authority is not properly 1 2 3 4 5
21.14
responding the compliance of Tax payers on time
Traditions of Corruption: Request for informal
21.15 payments to get things done in the course of Tax 1 2 3 4 5
assessment and Tax audit
Interference of others on Tax Audit 1 2 3 4 5
21.16
responsibilities
Engaging on additional activities like service 1 2 3 4 5
21.17
Audit out the schedules

22. In addition to what are listed in the above table, please write what you would consider as
major challenges that influence the practices of Tax Audit in Oromia Revenue Authority.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
____________________________
23. What should be done to alleviate challenges related to Tax Audit practices in Oromia Revenue
Authority? Please forward your suggestions.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
___________________________
Thank you for your devotion of time to respond this questionnaire!
94
 Appendix B: Questionnaire to be Filled by Taxpayers (English)
Addis Ababa University
College of Business and Economics
Department of Accounting and Finance
Questionnaire to be filled by Tax Payer

Dear Participants

The title of this thesis is “TAX AUDIT IN OROMIA REVENUE AUTHORITY: PRACTICES
AND CHALLENGES.” The name of the researcher is Tesfaye Bekele who is currently an MSc in
Accounting and Auditing student at the Addis Ababa University.

The aim of this project is to assess the practices and challenges of tax audit in Oromia Revenue
Authority. This questionnaire is prepared to supplement the data obtained from other sources.

This survey questionnaire is being distributed to get relevant information from randomly selected
respondents and participation is totally voluntary. The investigator respectfully requests your kind
cooperation in answering the whole question as frankly as possible and your response will be
recorded anonymously and strict confidentiality will be maintained.

For further information, please contact using the following address:

Tel. (mobile): +251 911993237

E-mail: bonsa2006@gmail.com

Thank you in advance for your cooperation and genuine response!

Part I: Background

1. Gender: Male 1 Female 2

2. Age: Less than 30 years 1 31-40 years 2

41-50 years 3 51-60 years 4

3. Educational Background:
Primary Education completed 1
Secondary Education completed 2
Certificate 3
Diploma 4
Bachelor's Degree 5
Master's Degree and above 6
Others (Please specify) _________________ 7
95
 4. Your current position:
Owner 1
Manager 2
Owner and manager 3
Accounts/Finance head 4
Others (Please specify) ________________ 5
5. How long has this business been paying taxes to Oromia Revenue Authority: head office?
1-5 years 1
6-10 years 2
11-15 years 3
Above 15 years 4
6. Current business type:
Manufacturing 1
Trade 2
Agriculture 3
Construction 4
Services 5
Others ___________________6

Part II: Tax Audit Practices

2.1. Goals of tax audit and major activities tax auditors

In your view the ultimate goals of the tax

7. Strongly Strongly
audit program at the Oromia Revenue Disagree Neutral Agree
disagree agree
Authority are:
7.1 Increasing government tax revenue 1 2 3 4 5
Increasing the compliance level of
7.2 1 2 3 4 5
taxpayers’ to the tax laws
Creating deterrent effect on non-compliant
7.3 1 2 3 4 5
taxpayers
7.4 Detecting tax evasion and avoidances 1 2 3 4 5
7.5 Training the taxpayers 1 2 3 4 5
7.6 Others (please specify) 1 2 3 4 5

96
8. In your view, the major activities tax auditors Strongly Strongl
Disagree Neutral Agree
usually perform during a tax audit period are: disagree y agree
Detecting noncompliance behavior of
8.1 1 2 3 4 5
individual taxpayer
Gather information on the health of the tax
8.2 1 2 3 4 5
system including compliance behavior
8.3 Training taxpayers 1 2 3 4 5
Interpreting complex tax rules and regulations
8.4 1 2 3 4 5
for taxpayers
Identify areas of tax law that require
8.5 1 2 3 4 5
clarification and amendment
8.6 Search for unregistered taxpayers 1 2 3 4 5
8.7 Others (please specify) 1 2 3 4 5

2.2. Frequency of Tax Audit Performed

9. Are there any schedules for your business firm by Oromia Revenue Authority for Tax audit
works? A) Yes B) No
If your answer is “YES” are they completed within a predetermined timeframe?
A) Yes B) No
If they did not completed within a predetermined timeframe, what do you think the reason for
its faller? ___________________________________________________________________
___________________________________________________________________________
___________________________________________________________________

10. On average, how frequently, do you think, each business is audited by Oromia Revenue
Authority?
Every business is audited once a year 1
Every business is audited once within two years 2
Every business is audited once within three years 3
Every business is audited once in five years’ time 4
It is difficult to describe its frequency; they were selected randomly 5
Others (please specify) ____________________________________ 6
11. In general, how do you evaluate the current practices of Tax Audit in Oromia Revenue
Authority; Head Office?
A) Excellent B). Very Good C). Good
D). Poor E). Very Poor

97
 Part III: Challenges of Tax Audit Practices

Inconsiderable

Very Sever
Challenge

Challenge

Challenge

Challenge
Moderate
How do you consider the following items as a

Challenge

Minor

Sever
12. challenge to the practices of Tax Audit in
Oromia Revenue Authority?

Limited capacity of management and leadership

14.1 on the part of Oromia Revenue Authority on tax 1 2 3 4 5
audit administration
In adequacy of resource and facilities required
14.2 1 2 3 4 5
for Tax Audit
Absences of Coordinated efforts among sector
14.3 offices of the region engaged on Tax audit 1 2 3 4 5
related responsibilities
Improper work environment and poor office
14.4 1 2 3 4 5
arrangements for Tax audit practices
Lack of clarity of policy, regulations and legal
14.5 1 2 3 4 5
frameworks regarding Tax Audit
Inconsistency and frequent changes of
14.6 regulations and laws related to Tax audit 1 2 3 4 5
practices
Inflated estimation of tax amount on tax payers
14.7 and unfair volume of tax among similar 1 2 3 4 5
businesses in the same proximity
Weak understanding of tax related rules and
14.8 1 2 3 4 5
regulations among Tax payers
Negative attitude towards tax paying practices
14.9 1 2 3 4 5
among tax payers
Lower level of tax payers' educational
14.10 1 2 3 4 5
background
Tax payers were consider illegal business
14.11 1 2 3 4 5
practices as best way of doing business
Absences of reliable and up-to-date data and
14.12 1 2 3 4 5
records keeping practices among Tax payers
Tax payers are not cooperative to give proper
14.13 1 2 3 4 5
information for tax auditors
Oromia Revenue Authority is not properly
14.14 responding the compliance of Tax payers on 1 2 3 4 5
time

98
 Inconsiderable

Very Sever
Challenge

Challenge

Challenge

Challenge
Moderate
How do you consider the following items as a

Challenge

Minor

Sever
12. challenge to the practices of Tax Audit in
Oromia Revenue Authority?

Traditions of Corruption: Request for informal

14.15 payments to get things done in the course of Tax 1 2 3 4 5
assessment and Tax audit
Interference of others on Tax Audit
14.16 1 2 3 4 5
responsibilities

13. In addition to what are listed in the above table, please write what you would consider as major
challenges that influence the practices of Tax Audit in Oromia Revenue Authority.
_________________________________________________________________________
_________________________________________________________________________
________________________________________________________________________
14. What should be done to alleviate challenges related to Tax Audit practices in Oromia Revenue
Authority? Please forward your suggestions.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Thank you for your devotion of time to respond this questionnaire!

99
 Appendix C: Questionnaire to be Filled by Taxpayers (Amharic)
አዲስ አበባ ዩንቨርስቲ

የቢዝነስ እና የኢኮኖሚክስ ኮሌጅ

የአካውንቲንግ እና ፋይናንስ ዲፓርትመንት

በግብር ከፋዮች የሚሞላ መጠይቅ

የተከበሩ ተሳተፊ፤

የዝህ ጥናትና ምርምር ርዕስ የግብር ኦዲት /tax audit/ አፈጻጸም እና ችግሮች በኦሮሚያ የገቢዎች
ባለስልጣን ዋና መስሪያ ቤት የሚል ነዉ፡፡ ጥናቱን እያከናወነ ያለው ተማሪ ተስፋዬ በቀለ ሲሆን
በአሁኑ ወቅት በአዲስ አበባ ዩኒቨርሲቲ በአካዉንትንግ እና ኦዲቲንግ የማስተርስ ድግሪ በመማር
ላይ የሚገኝ ነው፡፡

የጥናቱ ዋና ዓላማ በኦሮሚያ የገቢዎች ባለስልጣን ዋና መሥሪያ ቤት እየተከናወነ ባለው የግብር

ኦዲት /tax audit/ አፈጻጸም እና ችግሮች ላይ ጥናት ማካሄድ ነው፡፡

ይህ መጠይቅ የተዘጋጀዉ ጥናቱን የሚያግዙ አስፈላጊ መረጃዎቸን ለማሰባሰብ ነው፡፡ ከዚህ አንጻር
ይህ መጠይቅ የሚሰራጨው በጥናቱ ሂደት ተደራሽ ለሚሆኑ የተወሰኑ ግብር ከፋዮች ሲሆን
ለጥናቱ የተጠየቀውን አስፈላጊ መረጃ መስጠት በሙሉ ፈቃደኝነት ላይ የተመሰረተ ነው፡፡

ስለዚህ ይህንን መጠይቅ በአግባቡ በማንበብ ለሁሉም ጥያቄዎች አግባብነት ያለውን ትክክለኛ ምላሽ
በጥንቃቄ እንዲሰጡ የጥናቱ አጥኚ በአክብሮት እየጠየቀ፤ የሰጡትም ምላሽ ሚስጥራዊነት በከፍተኛ
ደረጃ ማንነትዎን በማይገልጽ ሁኔታ የሚጠበቅ መሆኑን ያስታውቃል፡፡

እባክዎ ለበለጠ መረጃ የሚከተለውን አድራሻ በመጠቀም ያግኙኝ!

ስልክ (ሞባይል): +251 911993237
ኢሜል: bonsa2006@gmail.com
ስለትብብርዎ በቅድሚያ እናመሰግናለን!

100
ክፍል 1፡ የመላሾች አጠቃላይ ሁኔታ መረጃ

1. ጾታ፡ ወንድ 1 ሴት 2
2. እድሜ፡ ከ 30 ዓመት በታች 1 ከ 30-40 ዓመት 2
ከ 41-50 ዓመት 3 ከ 50-60 ዓመት 4
3. የትምህርት ሁኔታ፡
አንደኛ ደረጃ ትምህርት 1 ሁለተኛ ደረጃ ትምህርት 2
ሰርተፍኬት 3 ዲፕሎማ 4
የመጀመርያ ዲግሪ 5 የማስተርስ ዲግሪ 6
ሌላ (ይገለጽ) _________________ 7

4. በአሁኑ ወቅት በድርጅቱ ውስጥ ያልዎት ኃላፊነትና የስራ ድራሻ፡

የድርጅቱ ባለቤት 1

የድርጅቱ ስራ አስኪያጅ 2

የድርጅቱ ባለቤት እና ስራ አስኪያጅ 3

የድርጅቱ ሂሳብ ኃላፊ/የሂሳብ ሠራተኛ 4

ሌላ (ይግለጹ) __________________________5

5. ድርጅትዎ እንደ ግብር ከፋይ ከኦሮሚያ ገቢዎች ባለስልጣን ጋር ያለው የሥራ ግንኙነት ስንት
ዓመት ይሆናል?
ከ1-5 ዓመት 1
ከ6-10 ዓመት 2
ከ11-15 ዓመት 3
ከ15 ዓመት በላይ 4

6. በአሁኑ ወቅት የተሰማሩበት የንግድ ዓይነት ምንድን ነው?

T’<óŸ†]”Ó 1
”ÓÉ 2
Ów`“ 3
Ó”vታ 4
›ÑMÓKAƒ 5
ሌላ (ይግለጹ) _____________ 6

101
 ክፍል 2፡ የግብር አፈጻጸምና አተገባበርን የሚመለከቱ ጥያቄዎች
2.1. የግብር ኦዲት (tax audit) ዓላማ እና የግብር ኦደተሮች ዋና ዋና ተግባራት

አልስማማም

አልስማማም
በእርስዎ ግንዛቤ በኦሮሚያ ገቢዎች ባለስልጣን

እስማማለሁ

እስማማለሁ
ገለልተኛ ነኝ
ከመስጠት
እየተከናወነ ያለው የግብር ኦዲት (tax audit)

በጣም

በጣም
7.
ዋና ዓላማ ምንድነው? ከዚህ በታች በቀረቡት

ሐሳብ
ጉዳዮች አንጻር ደረጃ በመስጠት ይመልሱ

7.1 መንግስት ከግብር የሚያገኘውን ገቢ ለማሳደግ 1 2 3 4 5

የግብር ከፋዮችን አፈጸጸም ከግብር ሕጉ ጋር

7.2 1 2 3 4 5
ለማጣጣም

ግብርን በአግባቡ የማይከፍሉ ግብር ከፋዮች

7.3 1 2 3 4 5
ማስጠንቀቂያ ለመስጠት

ግብር ከፋዮች በህገ ወጥ መንገድ መክፈል

ከሚገባቸው የግብር መጠን በታች እንዳይከፍሉ
7.4 1 2 3 4 5
እና የለአግባብ የግብር ቅነሳ እንዳያደርጉ
ለመቆጣጠር

7.5 ለግብር ከፋዮች ስልጠና መስጠት 1 2 3 4 5

7.6. ከላይ ከተዘረዘሩት በተጨማሪ ሌላ ተግባር ካለ ቢገለጽ

_____________________________________________________________________
_____________________________________________________________________
____________________________________________________________________
አልስማማም

አልስማማም

ገለልተኛ ነኝ

እስማማለሁ

እስማማለሁ
ከመስጠት
አርስዎ አንደተረዱት የግብር ኦዲተሮች
በጣም

በጣም
ሐሳብ

8. (tax auditor) የታክስ ኦዲት በሚያከናውኑበት

ጊዜ የሚሰሩት ዋና ዋና ስራዎችን በተመለከተ

ከግብር ሕጉ ጋር የማይጣጣሙ የግብር ከፋዩን

8.1 1 2 3 4 5
ስነ ምግባር እና ተግባራትን መለየት

የግብር ከፋዩን ጤናማ የግብር እንቅስቃሴን

8.2 1 2 3 4 5
አስመልክቶ ያሉትን መረጃዎች ማሰባሰብ

ለግብር ከፋዩ ከግብር ክፊያ ጋር የተያያዙ

8.3 1 2 3 4 5
ስልጠና መስጠት

አሻሚና ግልጽ ያልሆኑ ከግብር ከፍያ ጋር

8.4 የተያያዙ ህጎችንና ደንቦችን መተርጎም እና 1 2 3 4 5
ማብራራት

102
 አልስማማም

አልስማማም

ገለልተኛ ነኝ

እስማማለሁ

እስማማለሁ
ከመስጠት
አርስዎ አንደተረዱት የግብር ኦዲተሮች

በጣም

በጣም
ሐሳብ
8. (tax auditor) የታክስ ኦዲት በሚያከናውኑበት
ጊዜ የሚሰሩት ዋና ዋና ስራዎችን በተመለከተ

ከግብር ኦዲት (tax audit) ጋር ተያያዥነት

8.5 ያላቸው አሻሚ የሆኑ እና ማስተካከያ የሚፈልጉ 1 2 3 4 5
ህጎች እና ደንቦችን መለየት

በግብር ከፋይነት ያልተካተቱ ግብር ከፋዮችን

8.6 1 2 3 4 5
መለየት

8.7. ከላይ ከተዘረዘሩት በተጨማሪ በግብር ኦዲተሮች የሚከናወን ሌላ ተግባር ካለ ቢገለጽ

________________________________________________________________
________________________________________________________________
_______________________________________________________________
2.2. የግብር ኦዲት (tax Audit) ሥራ ድግግሞሽን በተመለከተ
11. በኦሮሚያ ገቢዎች ባለስልጣን የንግድ ድርጅትዎን የታክስ ኦዲት በተመለከተ ቀድሞ
የሚዘጋጅ የኦዲት መረሐ-ግብር አለ? ሀ/ አዎ አለ ለ/ የለም
ምላሽዎ አዎ አለ ከሆነ ሥራው በተባለው የኦዲት መረሐ ግብር እየተከናወነ ነውን?

ሀ/ አዎ በተያዘው መረሐ ግብር ይከናወናል ለ/ በተባለው መረሐ ግብር አይከናወንም

ምላሽዎ በተባለው መረሐ ግብር አይከናወንም ከሆነ የሚዘገይበትን የጊዜ እርዝማኔ (በወር)
እና ምክንያቱ ምን እንደሆነ ቢገልጹልን
__________________________________________________________________
__________________________________________________________________
_________________________________________________________________

12. የእርስዎ ድርጅት የግብር ኦዲት (tax Audit) የተደረገው በምን ያህል ቆይታና የድግግሞሽ
ጊዜ ነው?

ሀ. በዓመት አንድ ጊዜ

ለ. በሁለት ዓመት አንድ ጊዜ

ሐ. በአማካይ በየ3 ዓመቱ

መ. በአማካይ በየ5 ዓመቱ

ሠ. ዝም ብሎ በአጋጣሚ በሚደረግ ምርጫ ኦዲት የሚደረግ ስለሆነ ድግግሞሹን በትክክል

መግለጽ አይቻልም፡፡

ረ. ሌላ ምላሽ ካልዎት ይግለጹ፤ ______________________________

103
13. በአጠቃላይ እይታ የኦሮሚያ ገቢዎች ባለስልጣን የግብር ኦዲት (tax Audit) አተገባበርና
አፈጻጸምን እንዴት ይገመግሙታል?

ሀ. እጅግ በጣም ጥሩ
ለ. በጣም ጥሩ
ሐ. ጥሩ
መ. ደካማ
ሠ. በጣም ደካማ

ክፍል 3: የግብር ኦዲት (tax Audit) ችግሮችን/ተግዳሮቶችን በተመለከተ

በጣም አስከፊ
አስከፊ ችግር
ከዚህ በታች ባለው ስንጠረዥ ውስጥ የተዘርዘረት

መለስተኛ

መለስተኛ

መካከለኛ
ተግዳሮቶች በኦሮሚያ ገቢዎች ባለስልጣን የግብር

በጣም

ችግር

ችግር

ችግር

ችግር
14.
ኦዲት ሥራ ላይ ያስከተሉት ተጽእኖ እንዴት
ይገለጻል

የኦሮሚያ ገቢዎች ባለስልጣን የስራ ኃላፊዎች

14.1 የግብር ኦዲትን (tax Audit) የማስተዳደር እና 1 2 3 4 5
የመምራት ብቃት ውስን መሆን

ለግብር ኦዲት አስፈላጊ የሆኑ ግብአቶች እና

14.2 1 2 3 4 5
ቁሳቁሶች እጥረት

የግብር ኦዲት (tax Audit) ስራ የሚመለከታቸው

14.3 ቢሮዎች እና ጽ/ቤቶች በጥምረትና በትብብር 1 2 3 4 5
ያለመስራት

የግብር ኦዲት (tax Audit) ስራ ሁኔታ

14.4 1 2 3 4 5
አለመመቻቸት እና የቢሮ አደረጃጀት ደካማ መሆን

ለግብር ኦዲት (tax Audit) የሚያስፈልጉ ግልጽ

14.5 መመርያዎች እና ህጋዊ ማዕቀፍ በበቂ ሁኔታ 1 2 3 4 5
ያለመኖር

ከግብር ኦዲት (tax Audit) ጋር ተያያዥነት

14.6 ያላቸው ህጎች እና ደንቦች በየወቅቱ መለዋወጥ 1 2 3 4 5
እና ቀጣይነት ማጣት

አግባብነት የሌለው ከፍ ያለ የግብር ግምት በግብር

ከፋዮች ላይ አለአግባብ መጫንና ተመሳሳይና
14.7 1 2 3 4 5
ተመጣጣኝ ለሆኑ የንግድ ዘርፎች ተመጣጣኝ
ግብር አለመጠየቅ

በግብር ከፋዩ በኩል የግብር ህጎችና ደንቦችን

14.8 1 2 3 4 5
በአግባቡ አለመረዳት

104
 በጣም አስከፊ
አስከፊ ችግር
ከዚህ በታች ባለው ስንጠረዥ ውስጥ የተዘርዘረት

መለስተኛ

መለስተኛ

መካከለኛ
ተግዳሮቶች በኦሮሚያ ገቢዎች ባለስልጣን የግብር

በጣም

ችግር

ችግር

ችግር

ችግር
14.
ኦዲት ሥራ ላይ ያስከተሉት ተጽእኖ እንዴት
ይገለጻል

የግብር ከፋዩ ስለግብር ያለው አመለካከት

14.9 1 2 3 4 5
አሉታዊ(ነገቲቨ) መሆን

14.10 የግብር ከፋዩ የትምህርት ደረጃ ዝቅተኛ መሆን ፡፡ 1 2 3 4 5

የግብር ከፋዩ ህገ ወጥ የንግድ አሰራርን እንደ

14.11 መልካምና የተሻለ የንገድ አሠራር አድርጎ 1 2 3 4 5
መመልከት፡፡

በግብር ከፋዩ ዘንድ ትክክለኛና ወቂታዊ የሆነ

14.12 የመረጃና (የዳታና) የመዝገብ አያያዝ ተጠናቅሮ 1 2 3 4 5
አለመኖር

የግብር ከፋዩ ለታክስ ኦዲተሮች መረጃ ለመስጠት

14.13 1 2 3 4 5
ፈቃደኛ ያለመሆንና አለመተባበር

የኦሮሚያ ገቢዎች ባለስልጣን ለግብር ከፋዮች

14.14 1 2 3 4 5
ቅሬታ ወቅታዊና ትክክለኛ ምላሽ አለመስጠት፡፡

የታክስ ኦዲተሮች ያልተገባ ክፍያ መጠየቅና

14.15 1 2 3 4 5
የሙስና ተሞክሮና የአሠራር ብልሹነት መኖር

ከኦሮሚያ ገቢዎች ባለስልጣን ውጪ የሌሎች

14.16 አካላት በግብር ኦዲት (tax Audit) አሰራር ውስጥ 1 2 3 4 5
ጣልቃ መግባት

15. ከላይ በሠንጠረዡ ውስጥ በከፊል ከተዘረዘሩት ተግዳሮቶች /ችግሮች በተጨማሪ የግብር ኦዲትን

(tax Audit) በኦሮሚያ ገቢዎች ባለስልጣን እያደናቀፉ ያሉትን ተጨማሪ ተግዳሮቶች ቢገልጹልን፡፡
_____________________________________________________________________
_____________________________________________________________________
16. በኦሮሚያ ገቢዎች ባለስልጣን እየተከናወነ ያለው የግብር ኦዲት (tax Audit) የበለጠ ለማሻሻል እና

ችግሮችን ለመቅረፍ ያስችላሉ የሚሉትን የመፍትሄ ሃሳብ ቢገልጹልን፡፡

_____________________________________________________________________
_____________________________________________________________________

ጊዜዎን መስዋዕት አድርገው ይህንን መጠይቅ ስለሞሉልን እናመስግናለን!

105
 Appendix D: Interview Questions
Addis Ababa University
College of Business and Economics
Department of Accounting and Finance
Interview Questions Administered with Officials
The purpose of this questionnaire is to gather data to assess “practices and challenges Tax Audit in Oromia
Revenue Authority: Head Office”. The findings this research is used for the partial fulfillment of Masters
of Accounting and Auditing.

Therefore, the information gathered through this interview was used for academic purpose only. Your answer
and suggestion will be strictly kept confidential and your personal and organization’s identity will not be
revealed. I therefore, kindly request you to correctly respond the following interview questions.

1. Personal Information of the interviewee

2. How do you describe the ultimate goals of tax audit program in Oromia Revenue Authority?
3. What are the major activities tax auditors, investigators usually perform during tax audit period?
4. What types of Tax Audit are usually performed by Tax Auditors of Oromia Revenue Authority?
5. What are the conditions usually used by Oromia Revenue Authority to select any types of Tax
Audit?
6. What are the major criteria usually used by Oromia Revenue Authority to decide the need for
tax audit (investigate) of a certain taxpayer?
7. Which Tax Audit Techniques are usually applied by auditors of Oromia Revenue Authority
auditor to collects audit evidence from Tax payers?
8. Are there any schedules for all tax payers in Oromia Revenue Authority that requires Tax audit
works to be started and completed within a predetermined timeframe? Please describe the
schedules.
9. How frequently Tax Audit was performed for every business firms of the Tax payer by Oromia
Revenue Authority Tax auditors and assessors?
10. How do you evaluate the provision of resources required for the practices of Tax Audit in
Oromia Revenue Authority; Head Office?
11. How do you evaluate the competency of Tax Auditors?
12. What are the major challenges that influence the practices of Tax Audit in Oromia Revenue
Authority?
13. What should be done to alleviate challenges related to Tax Audit practices in Oromia Revenue
Authority? Please forward your suggestions.

106
 Appendix E: Respondents’ View on the Ultimate goals of Tax Audit Program at ORA

No Items Respondents SA Agree Neutral Disagree SDA Total Mean SD

TP 50 97 19 32 15 213 3.63 1.20

Increasing government tax
1 TA 15 11 0 3 3 32 4.00 1.32
revenue
Total 65 108 19 35 18 245 3.68 1.22

TP 31 106 6 52 18 213 3.38 1.24

Increasing the compliance
2 level of taxpayers’ to the tax TA 8 19 5 0 0 32 4.09 0.64
laws
Total 39 125 11 52 18 245 3.47 1.20

TP 37 95 9 54 18 213 3.37 1.27

Creating deterrent effect on
3 TA 8 7 0 14 3 32 3.09 1.44
non-compliant taxpayers
Total 45 102 9 68 21 245 3.33 1.29

TP 41 112 14 28 18 213 3.61 1.18

Detecting tax evasion and
4 TA 11 13 3 5 0 32 3.94 1.05
avoidances
Total 52 125 17 33 18 245 3.65 1.17

TP 23 33 14 46 97 213 2.24 1.44

5 Training the taxpayers TA 5 3 6 11 7 32 2.63 1.36

Total 28 36 20 57 104 245 2.29 1.43

TP 182 443 62 212 166 1065 3.25 1.36

Overall Results TA 47 53 14 33 13 160 3.55 1.32

Total 229 496 76 245 179 1225 3.29 1.36

107
 Appendix F: Major Activities Usually Performed by Tax Auditors during Tax Audit Period

No Items Respondents SA Agree Neutral Disagree SDA Total Mean SD

TP 14 71 35 24 69 213 2.70 1.39

Detecting noncompliance behavior of
1 TA 5 7 8 10 2 32 3.09 1.20
individual taxpayer
Total 19 78 43 34 71 245 2.76 1.37

Gather information on the health of TP 101 67 11 15 19 213 4.01 1.27

2 the tax system including compliance TA 13 16 0 3 0 32 4.22 0.87
behavior
Total 114 83 11 18 19 245 4.04 1.23
TP 23 36 10 63 81 213 2.33 1.41
3 Training taxpayers TA 2 6 5 17 2 32 2.66 1.07
Total 25 42 15 80 83 245 2.37 1.37
TP 46 65 7 53 42 213 3.09 1.49
Interpreting complex tax rules and
4 TA 3 9 12 2 6 32 3.03 1.23
regulations for taxpayers
Total 49 74 19 55 48 245 3.09 1.45
TP 40 76 14 54 29 213 3.21 1.37
Identify areas of tax law that require
5 TA 0 25 2 5 0 32 3.63 0.75
clarification and amendment
Total 40 101 16 59 29 245 3.26 1.31
TP 30 99 18 37 29 213 3.30 1.29
6 Search for unregistered taxpayers TA 10 8 8 3 3 32 3.59 1.29
Total 40 107 26 40 32 245 3.34 1.29

108
 Appendix G: Major Challenges to the Practices of Tax Audit in Oromia Revenue Authority

No Items Respondents SA Agree Neutral Disagree SDA Total Mean SD

Limited capacity of management and TP 58 48 66 21 20 213 3.48 1.25
leadership on the part of Oromia
1 TA 12 4 8 6 2 32 3.56 1.34
Revenue Authority on tax audit
administration Total 70 52 74 27 22 245 3.49 1.25
TP 20 55 67 41 30 213 2.97 1.18
In adequacy of resource and facilities
2 TA 7 9 6 5 5 32 3.25 1.39
required for Tax Audit
Total 27 64 73 46 35 245 3.01 1.18
Absences of Coordinated efforts TP 67 77 28 35 6 213 3.77 1.14
among sector offices of the region
3 TA 6 15 7 4 0 32 3.72 0.92
engaged on Tax audit related
responsibilities Total 73 92 35 39 6 245 3.76 1.14

Improper work environment and poor TP 26 57 62 42 26 213 3.07 1.20

4 office arrangements for Tax audit TA 6 14 3 5 4 32 3.41 1.32
practices
Total 32 71 65 47 30 245 3.11 1.20

Lack of clarity of policy, regulations TP 30 53 45 52 33 213 2.98 1.30

5 and legal frameworks regarding Tax TA 6 6 13 7 0 32 3.34 1.04
Audit
Total 36 59 58 59 33 245 3.02 1.30

Inconsistency and frequent changes TP 48 69 43 22 31 213 3.38 1.33

6 of regulations and laws related to Tax TA 6 11 8 7 0 32 3.50 1.05
audit practices
Total 54 80 51 29 31 245 3.40 1.33
Inflated estimation of tax amount on TP 97 78 19 11 8 213 4.15 1.04
tax payers and unfair volume of tax
7 TA 13 9 5 3 2 32 3.88 1.24
among similar businesses in the
same proximity Total 110 87 24 14 10 245 4.11 1.04

Weak understanding of tax related TP 35 68 43 47 20 213 3.24 1.23

8 rules and regulations among Tax TA 12 4 5 11 0 32 3.53 1.32
payers
Total 47 72 48 58 20 245 3.28 1.23

109
No Items Respondents SA Agree Neutral Disagree SDA Total Mean SD

TP 60 60 49 31 13 213 3.58 1.21

Negative attitude towards tax paying
9 TA 12 4 10 2 4 32 3.56 1.39
practices among tax payers
Total 72 64 59 33 17 245 3.58 1.21
TP 15 72 61 49 16 213 3.10 1.07
Lower level of tax payers' educational
10 TA 7 11 6 4 4 32 3.41 1.32
background
Total 22 83 67 53 20 245 3.14 1.07

Tax payers were consider illegal TP 71 93 20 19 10 213 3.92 1.10

11 business practices as best way of TA 10 16 4 2 0 32 4.06 0.84
doing business
Total 81 109 24 21 10 245 3.94 1.10

Absences of reliable and up-to-date TP 62 76 51 19 5 213 3.80 1.03

12 data and records keeping practices TA 11 11 8 2 0 32 3.97 0.93
among Tax payers
Total 73 87 59 21 5 245 3.82 1.03

Tax payers are not cooperative to TP 32 37 99 31 14 213 3.20 1.07

13 give proper information for tax TA 4 13 4 8 3 32 3.22 1.24
auditors
Total 36 50 103 39 17 245 3.20 1.07

Oromia Revenue Authority is not TP 89 67 46 7 4 213 4.08 0.97

14 properly responding the compliance TA 12 8 8 2 2 32 3.81 1.20
of Tax payers on time
Total 101 75 54 9 6 245 4.04 0.97
Traditions of Corruption: Request for TP 108 71 22 8 4 213 4.27 0.93
informal payments to get things done
15 TA 9 14 4 3 2 32 3.78 1.16
in the course of Tax assessment and
Tax audit Total 117 85 26 11 6 245 4.21 0.93
TP 44 69 31 44 25 213 3.30 1.32
Interference of others on Tax Audit
16 TA 3 11 7 8 3 32 3.09 1.17
responsibilities
Total 47 80 38 52 28 245 3.27 1.32

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 Appendix H: Responses of Tax Auditors on Tax audit Selection Criteria Usually Practices in Oromia Revenue Authority

No Items SA Agree Neutral Disagree SDA Total Mean SD

1 Amount of capital and high tax potential of the tax payer 11 13 3 3 2 32 3.88 1.185

2 Long years of establishment of Tax payers business firm 12 17 0 3 0 32 4.19 0.859

Amount of annual profit declared by Tax payers and possible amount of tax
3 15 15 2 0 0 32 4.41 0.615
to be collected
4 Number of Human resources in the Tax payers business firm 8 16 0 6 2 32 3.69 1.230
Taxpaying trends of the Tax payers: through Statistical techniques using
5 9 18 5 0 0 32 4.13 0.660
prior tax audit results in conjunction with taxpayer data
Level of taxpayer’s cooperation to give essential information necessary for
6 11 8 13 0 0 32 3.94 0.878
performing an audit
7 Presences of Taxpayers associated compliance risks 9 18 5 0 0 32 4.13 0.660

8 Frequency of Taxpayers complain on tax related issues 15 9 5 3 0 32 4.13 1.008

9 Availability of required resource for tax audit 2 16 5 9 0 32 3.34 0.971

10 Evasion and fraud related information on tax payer 19 8 3 2 0 32 4.38 0.907

11 Through screening and case review; using criteria set for this purposes 7 20 3 0 2 32 3.94 0.948
Through data mining techniques that identifies patterns of noncompliance in
12 6 8 18 0 0 32 3.63 0.793
the past and current circumstances
Proportionality of the types and number of business sectors of the tax
13 2 13 9 2 6 32 3.09 1.228
payers
14 When taxpayers reported tax returns less than previous period return 0 13 8 11 0 32 3.06 0.878
Automated risk scoring system that identifies risk of noncompliance of the
15 0 24 5 0 3 32 3.56 0.914
taxpayers
Relationship of the tax payers has with officials of the Authority (beneficial
16 2 4 11 13 2 32 2.72 0.991
relationship and nepotism)
17 Using simple random sampling technique without any analysis 0 13 3 9 7 32 2.69 1.230

18 Simply by orders given from officials of the authority 0 7 15 7 3 32 2.81 0.896

19 Audit knowledge of taxpayers behavior and environment 5 13 7 5 2 32 3.44 1.134

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 Appendix I: Tax audit Techniques Usually Practiced in Oromia Revenue Authority

No Items SA Agree Neutral Disagree SDA Total Mean SD

Inspection of documents and records: inspecting
1 documents to evaluate the validity of the account 13 12 5 1 1 32 4.09 0.995
balances
Physical inspection of tangible assets: whether the
2 assets and liabilities stated in the balance sheet actually 2 6 4 8 12 32 2.31 1.330
exist on the balance sheet date.

Observation: It involves witnessing a process or

3 5 13 7 4 3 32 3.41 1.188
procedure being performed by others

Inquiry: seeking information and explanations from

4 knowledgeable persons inside or outside the 2 3 5 11 11 32 2.19 1.203
organization under audit

Confirmation: is done to support the information

5 contained in the records, through a written or oral 12 9 3 4 4 32 3.66 1.428
statement from competent parties

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 Appendix J: Tax Auditors’ Self Evaluation Results on their Competency

No Items SA Agree Neutral Disagree SDA Total Mean SD

Understanding and Knowledge of Tax related rules and

1 5 6 18 3 0 32 3.41 0.875
regulation
2 Experience and capacity on Tax audit functions 1 9 15 5 2 32 3.06 0.914

3 Attitude towards Tax payers 0 6 8 12 6 32 2.44 1.014

Team-work and working in collaboration among
4 7 13 9 3 0 32 3.75 0.916
themselves
5 Effort made to improve their knowledge and skills 3 14 9 6 0 32 3.44 0.914

6 Properly Serving and solving problems of tax payers 1 3 8 12 8 32 2.28 1.054

7 Impartiality and neutrality of Tax auditors 2 8 8 7 7 32 2.72 1.250

Overall Results 3.01 1.110

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