Impact of Tax Audit on Tax Compliance with Reference to Category “A” Taxpayers: A Case Study in Hawassa City Administration, South Nations, Nationalities and Peoples’ Regional State of Ethiopia

Abstract

The main issue faced by all tax authorities is that it has never been easy to persuade all taxpayers to comply with the regulations of a tax system. Business sector is one of the fastest growing sectors of the economy in Ethiopia. The study specifically sought the effect of tax audit, fines and penalties, and tax education and knowledge on tax compliance in Hawassa City, south nations, nationalities and peoples’ regional state. Population under this research comprises Hawassa City audit officers who are 50 audit officers. Since the number of staff is not large, the study used census approach. Data were collected using structured questionnaire, both primary and secondary data were used. Descriptive statistical tools and correlation and multiple regressions analysis were used in analyzing the data collected. The study findings showed that probability of tax audit, and tax knowledge and education have positive effect on level of tax compliance. Similarly, fines/penalties have positive effect on level of tax compliances. The study provides some preliminary evidence that probability of tax audit, imposing fines/penalties and provision of tax knowledge and education will improve tax compliance. There should be stiff enforcement of fines and penalties to deter tax evasion. Additionally, tax authorities should simplify processes involved in filling of returns and payment of taxes.