Tax Audit Effectiveness and Tax Compliance in Ethiopia: The Case of Ministry of Revenues

Abstract

The objective of the study is to analyze the determinants of tax audit effectiveness and tax compliance in Ethiopia. Quantitative research approach with explanatory research design was used in this study. Consequently, quantitative data were collected. The sample size used in this study was 550 tax auditors, and 1,067 taxpayers. Convenience sampling technique was used to access the right subjects to for the study. In this study, Partial Least Square Structural Equational Modeling (PLS-SEM) is used for data analysis. The study result has indicated that institutional related factors, tax auditor related factors, and taxpayers’ related factors have a direct effect on tax audit effectiveness. Additionally, institutional related factors, taxpayers’ related factors, and tax audit effectiveness have a direct effect on tax compliance. Furthermore, institutional related factors, taxpayers’ related factors, and tax auditor related factors also have an indirect effect on tax compliance in Ministry of Revenues, Ethiopia. Based on these findings, it is recommended that policymakers and Ministry of Revenues need to strengthen institutional frameworks and taxpayers’ knowledge, improve the training and resources available to tax auditors to enhance tax audit effectiveness as well as tax compliance. That is to say, targeted taxpayer education and engagement initiatives could foster greater tax compliance. Hence, integrating these strategies can reinforce the link between effective tax audits and taxpayer compliance, ensuring a more robust tax administration system.