IMPACT OF TAXAUDIT ON TAXPAYER'S

COMPLIANCE: A STUDY ON SELECTED IN JIMMA

ZONE REVENUE AUTHORITY

Thesis Submitted to the School of Graduate Studies of Jimma

University in Partial Fulfillment of the Requirements for the Award of
Degree of Master of Science (MSc) in Accounting and Finance

BY: GETAHUN HORDOFA AYANA

JIMMA UNIVERSITY
COLLEGE OF BUSINESS & ECONOMICS
POST-GRADUATE PROGRAM IN ACCOUNTING AND FINANCE

SEPT 2016/ 2023

JIMMA UNIVERSITY, ETHIOPI
 IMPACT OF TAX AUDIT ON TAXPAYER'S
COMMPLIANCE: A STUDY ON SELECTED IN JIMMA
ZONE REVENUE AUTHORITY.

Thesis Submitted to the School of Graduate Studies of Jimma

University in Partial Fulfillment of the Requirements for the Award of
the degree of Master of Science (MSc) In Accounting and Finance
BY: GETAHUN HORDOFA AYANA

Under the Guidance of

PRINCIPAL ADVISOR: MENGISTU DEYASSEE (ASS PROOF)
CO-ADVISOR: MONANOL TERFA
JIMMA UNIVERSITY
COLLEGE OF BUSINESS & ECONOMICS
POST-GRADUATE PROGRAM IN ACCOUNTING AND FINANCE (MSc)

SEPT 2016/2023
JIMMA UNIVERSITY, ETHIOPIA

ii
 CERTIFICATE
This is to certify that the thesis entitles .The Impact of Tax Audit on Taxpayer's Compliance: A
Stud on Selected Jimma Zone Revenue Authority submitted to Jimma University for the award
of the is a record of bonafide Research work carried of the Degree of Master of Science In
Accounting And Finance (MSc) and is a record of bonafide research work carried out by
Mr.Getahun Hordofa Under Our Guidance And Supervision

Therefore, we hereby declare that no part of this thesis has been submitted to any other
university or institutions for the award of any degree.

Main adviser’s Name ………………………. …...Sign………………. Date …………………

Co-Adviser’s Name…………………………Sign………………...Date……………….

i
 DECLATRATION
I hereby declare that the thesis entitled “The Impact of Tax Audit on Taxpayer's Compliance: A
study on selected Jimma Zone revenue authority the of degree of Master of Science in
Accounting and Finance (MSc) has been carried out by me under the guidance and supervision
of Mengistu Deyassee and Monanol Terfa, The thesis is original and has not been submitted
for the award of any degree to any the thesis is original and has not been submitted for the award
of any degree to any Jimmaa University

RESEARCH

Name………………………………………………Sign…………………… Date…………….

Name of Institution…………………………………………………………………………..

Date of submission ……………………………………………………………………………

ii
 JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPENDENT OF ACCOUNTINGAND FINANCE

MASTERS OF ACCOUNTING AND FINANCE

Approval by Board of Examiners

Research on the Impact of Tax Audit on Taxpayer's Compliance: The Case study
of Jimma Zone Revenue Authority.

External examiner name Signature Date

______________ _________ ________

Internal examiner name Signature Date

_________ _________ ---------

Chair person’s name Signature Date

_______________ _________ ______

iii
 Table of content
Page

Table of Contents
CERTIFICATE.............................................................................................................................i

DECLATRATION.......................................................................................................................ii

Table of content..........................................................................................................................iv

List of table.....................................................................................................................................ix

List of Tables..............................................................................................................................ix

LIST OF FIGURES.....................................................................................................................x

ACRONYMS AND ABBREVIATION.....................................................................................xi

ACKNOWLEDGEMENT.........................................................................................................xii

ABSTRACT.............................................................................................................................xiii

CHAPTER one................................................................................................................................1

1. Introduction..................................................................................................................................1

1.3 Statement of the Problem.......................................................................................................4

1.4 Objectives of the Study..............................................................................................................6

1.4.1: General Objective..............................................................................................................6

1.4.2 Specific Objectives........................................................................................................7

1.4.3 Research Question.........................................................................................................7

1.5: Significance of the Study......................................................................................................7

1.6 Scope and Delimitation of the Study.....................................................................................8

1.7 Operational and Definition of Terms.....................................................................................8

1.8 Organization of the Paper..........................................................................................................9

CHAPTER TWO...........................................................................................................................10

LITERATURE REVIEW..............................................................................................................10

iv
 2. Introduction............................................................................................................................11

2.1 Theoretical Framework............................................................................................................11

2.2 Tax Revenue........................................................................................................................12

2.3 Tax Audit.............................................................................................................................12

2.4 Tax compliance....................................................................................................................13

2.5 Rising of Income:.................................................................................................................14

2.6 Riches Redistribution:..........................................................................................................14

2.7 Economic Cost Solidness.....................................................................................................14

2.8 Economic Growth and Development...................................................................................14

2.9 The Roles of the Taxpayer Audit Program..........................................................................16

2.10 Government Revenues Scope and Extent..........................................................................18

2.11 Resources for the Tax Audit Function...............................................................................18

2.12 Tax Non-Compliance.........................................................................................................19

2.13 Tax gap...............................................................................................................................19

2.14 Factors Determining Tax Compliance Behavior...............................................................19

2.15 Obligations of the Taxpayer...............................................................................................20

2.16 Awareness level of Taxpayers...........................................................................................21

2.17 Responsibilities of Taxpayer..............................................................................................21

2.18 Theory of Planned Behavior..............................................................................................22

2.19 Empirical studies................................................................................................................22

2.20 Probability of Detection and Tax Compliance...................................................................23

2.21 Awareness of Offences and Penalties and Tax Compliance..............................................24

2.22 Tax Education....................................................................................................................25

2.23 Tax Audit and Tax Compliance.........................................................................................25

2.24 Voluntary tax compliance..................................................................................................26

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 2.25. Tax Sanctions....................................................................................................................27

2.26 Taxpayer Compliance........................................................................................................27

2.27 Summary of literature review and knowledge gap............................................................27

2.28 Conceptual Framework......................................................................................................28

2.29 Independent and depends variables....................................................................................28

Tax Compliance.........................................................................................................................28

CHAPTER THREE.......................................................................................................................29

RESEARCH METHODOLOGY..................................................................................................29

3. Introduction............................................................................................................................29

3 .1 Research Design..................................................................................................................30

....................................................................................................................................................31

3.2 Target Population and Sampling..........................................................................................31

3.3 Sampling and techniques.....................................................................................................32

3.4 Sources of Data....................................................................................................................33

3.5 Primary of Data....................................................................................................................33

3.5 Secondary Data....................................................................................................................33

3.6 Measurement of Variables tax compliance..........................................................................34

3.6 Measurement of Independent Variables..............................................................................34

3.7 Techniques of Data Collection.............................................................................................34

3.8 Methods of Data Analysis....................................................................................................35

3.9 Model Specification and Description of Study Variables....................................................35

3.10 Reliability and Validity Analysis.......................................................................................36

3.10 Validity...............................................................................................................................36

3.11 Reliability Test...................................................................................................................37

3.12 Ethical Consideration.........................................................................................................38

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 3.13 Questionnaires....................................................................................................................38

3.10. Interview...........................................................................................................................38

CHAPTER FOUR.........................................................................................................................39

DATA ANALYSIS, REULTS AND DISCUSSIONS..................................................................39

4. Introduction................................................................................................................................39
4.1 Response Rate......................................................................................................................40

4.2 Demographic Information....................................................................................................41

4.3 Socioeconomic status of respondents..................................................................................41

4.4 Probability of Tax Audit......................................................................................................43

4.5 Tax Fines and Penalties........................................................................................................44

4.6 Tax Knowledge and Education............................................................................................46

4.7 Tax Audit.............................................................................................................................47

4.8 Tax volunteer factor.............................................................................................................49

4.8 Tax Sanction Factor.............................................................................................................50

4.9 Tax Motivational factor.......................................................................................................51

4.10 Descriptive Statistical Analysis.........................................................................................53

4.11 Tax Compliance.................................................................................................................54

4.12 Correlation Statistical Analysis..........................................................................................55

4.13 Results of Regression Analysis..........................................................................................59

4.13.1 Results of Regression Analysis and Discussions................................................................59

4.14 Econometric Analysis........................................................................................................62

4.14.1 Results multiple linear regression.......................................................................................62

4.15 Model Summary.................................................................................................................62

4.16 Analysis of Measures.........................................................................................................63

4.17 Reliability Test...................................................................................................................64

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 4.8 Multicollinearity...................................................................................................................64

4.9 Heteroscedastic test..............................................................................................................65

CHAPTER FIVE...........................................................................................................................70

5. CONCLUSIONS AND RECCOMENDATIONS.....................................................................70

5.1 Conclusions..........................................................................................................................70

5.2 Recommendations................................................................................................................73

5.3. Direction for future research...............................................................................................74

BIBLIOGRAPHY......................................................................................................................75

viii
 LIST OF TABLE

Table 3.1. Sample Size of the Study..............................................................................................33

Table 34.1 Response Rate..............................................................................................................40

List of Tables
Table 1Table 4.1 - Response Rate of respondents.........................................................................31
Table 2Table 4.2: Demographic Characteristics of Tax Auditors.................................................35
Table 3Table 4. 2: Socio-economic status of Respondents...........................................................38
Table 4Table 4. 3 Response on probability tax audit....................................................................39
Table 5Table 4. 4: Responses on Fines and Penalties...................................................................39
Table 6Table 4.5: Responses on Tax Knowledge and Education.................................................42
Table 7Table 4.5: Taxpayer behavior............................................................................................58
Table 8Table 4.6 Responses on Motivational Factors...................................................................62
Table 9Table 4. 7 Responses on Tax Compliance.........................................................................63
Table 10 Table 4.8.Correlations coefficient..................................................................................64
Table 11Table 4.9: linear Multiple regression analysis table........................................................50
Table 12Table 4. 11 Coefficients model........................................................................................69
Table 13 Table 4.10ANOVAmodel...............................................................................................53
Table 14Table 4.12: Model summary...........................................................................................71
Table 15 Table 4. 11: Reliability Statistics...................................................................................58
Table 16 Table 4. 12: Co linearity Statistics.................................................................................60

ix
 LIST OF FIGURES
Figure 1: Independent and depend.................................................................................................28
Figure 2: Normality test Table Histogram 2023 ……………………………………………….64

x
ACRONYMS AND ABBREVIATION
ERCA Ethiopia Revenue and Customs Authority

FDR Federal Democratic Republic of Ethiopia

GDP Gross Domestic product
GT Growth and transformation plan
OECD Organization for Economic Co-operation and Development
SME Small and medium enterprises
SPSS Statistical Package for Social Science
PENALTY Penalties and Enforcement
TAXKNOW Tax Knowledge and Education
TAX AUDITIT Probability of being tax audited
TAXCOMP Tax Compliance
VAT Value added tax

SPSS Statistical Package Social Science

xi
 ACKNOWLEDGEMENT
First of all, I would like to thank my Lord who has provided me with guidance in all my life
endeavors and also my family and friends who were always ready to support when I needed
them. I repay deep gratitude to my research advisor, Mangiest Deyassaa (Ass prof), has devoted
in providing me with scholarly guidance and support starting from idea structuring until the final
development of the research report. I am indebted to than managers and employees of Jimma
Zone Revenue Authority who have supported me to make the study and showed interest by
dedicating their time to filling out the questionnaires, which is the foremost reason I am able to
finalize the study.

xii
 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. Taxes are generally considered the
primary source of revenue for governments. The study specifically sought the impacts of tax
audit fines and penalties and tax education knowledge on tax compliance and tax motivation in
Jimma Zone. The population under this research comprises the Jimma Zone Revenue and
Authority Office. The study employed quantitative and qualitative research methods, with
purposive sampling in the case study. A survey was conducted with selected tax auditors in the
main office and quality controllers and managers of the main office of the Jimma Zone
Administration Revenue Authority. 142 respondents were selected through the random sampling
method. Data were collected using a structured questionnaire; both primary and secondary data
were used. Descriptive statistical tools and correlation and multiple linear regression analyses
were used in analyzing the collected data, which was processed using descriptive statistics like
frequency and means by employing SPSS (Statistical Package for Social Scientists), version 25
Windows software. The results of the study show that voluntary tax compliance is directly
affected by the four factors of tax audit probability, fines and penalties, tax knowledge, and
education. The probability of an audit and the severity of sanctions have the strongest negative
impact on tax compliance. Therefore, the tax authorities need to strengthen the inspection of tax
declarations, tax payments, and tax refunds by firms. The paper confirms that enforced tax
compliance is directly affected by the three factors of probability, tax audit, and tax sanction.
Voluntary tax compliance and compliance have an impact on taxpayer compliance, though tax
compliance has a more powerful impact. Tax authorities should simplify the processes involved
in the filing of returns and taxpayer taxes. The study concluded that fines and punishments play
an important role in moving forward to assess taxpayers' compliance. Finally, the study
recommended that this program requires a charge organization to have adequate powers that
empower it to implement tax compliance successfully. This aims to make citizens responsible for
taxes.

Keywords: tax audit, tax knowledge and education, taxpayer’s compliance

xiii
 CHAPTER ONE
1. INTRODUCTION
In this chapter the researcher discusses the study based on the following sub-headings: the
background of the study, the problem statement, objectives of the study, research questions,
scope and significances of study, limitation of study.

1.2 Background of the study

Tax is a mandatory financial contribution imposed by governments on individuals, businesses,

and other entities to fund public expenditures and provide essential services and infrastructure.
Taxes are a primary source of revenue for governments, and they are used to finance various
public programs, such as education, healthcare, defense, transportation, and social welfare. These
levies are made on personal income such as salaries, business profits, interest dividends,
discounts, and royalties to obtain revenue. It is levied against company profits, petroleum profits,
capital gains, and capital transfers (Bello 2012). Therefore, taxation is the main source of
government; it is a compulsory payment or transfer of resources from the private to the public
sector levied on the basis of determined criterion without reference to specific benefits received
in order to accomplish some of the nation’s economic and social objectives. Taxation is
primarily aimed at generating revenue for the government in order to cater for its expenditures
(Lymer 2019).

According to Berhan and Jenkin (2015), the government tries to design different strategies for
the collection of taxes and places great emphasis on policy and administration of taxes to solve
the problem and generate the required revenue for public expenditures. The primary goal of a
revenue body’s compliance activity is to improve overall compliance with their tax laws and
regulations and, in the process, instill confidence in the community that the tax system and its
administration are fair (Brown 2013).A tax audit is an examination of whether a taxpayer has
correctly assessed and reported their tax liability and fulfilled their obligations. The examination
can only proceed if it is supported by a robust legal framework; otherwise, it would be subject to
challenge by the Revenue Authority.

Taxes are fundamental to the existence of governments because the tax revenues help to finance
the bulk of services that governments provide, including education, welfare, public safety

1
infrastructure, and other basic public services. Improved tax compliance intensifies the available
funding for supporting public services without increasing the current tax burden on compliant
taxpayers. Bird Casanegra (1992) Tax compliance has been an important issue in developed and
developing countries. Since each country has its own approach to managing tax compliance
levels and each has different tax laws and regulations, the factors impacting tax compliance
behavior appear different among countries.

According to Kircher (2008) a tax audit is the examination of an individual or organization’s tax
report by the relevant tax authorities in order to ascertain compliance with applicable tax laws
and regulations of the state, and A tax audit is a process conducted by the Internal Revenue
Service (IRS) or other tax authorities to verify the accuracy of the information reported on a
taxpayer's tax return. A least-developed country like Ethiopia is in a difficult situation to provide
these basic public goods and services from taxes due to weak tax collection, taxpayers'
ignorance, and tax administration Onoja and warier (2015) disclosed that over the years, revenue
derived from taxes has been very lowland no physical development actually took place

In Ethiopia taxes are considered source of growth and development and the tax audit is critical
issue for the government and tax revenues and other revenues are central to the current economic
development agenda. They provide a stable flow of revenue to finance development priorities
such as strengthening physical infrastructure. They are interwoven with numerous other policy
areas from good governance and formalizing the economy to spurring growth (Pfizer 2019).

When a tax audit is well conducted and taxpayers understand that their returns will be quickly
and scientifically analyzed, voluntary compliance rates may rise, which could help tax agencies
avoid costs and further improve revenue collection. Brown (2013), Tax audit and compliance
system volunteer tax integrated solution designed to improve tax auditor productivity and
increase tax revenues.

The Federal Democratic Government of Ethiopia is focusing on improving its tax administration
capacity, including tax audits. Tax audits play a crucial role in enhancing tax revenue and
taxpayer compliance in any country. The productivity or performance model was directed at
investigating the buoyancy of the Ethiopian tax system through a detailed assessment of the
contributions of individual taxes to total tax collections and to GDP. Tax audits are conducted to
ensure that taxpayers are accurately reporting their income, deductions, and tax liabilities

2
according to the applicable tax laws and regulations (Misrak, 2008, cited in Hailemariam, 2011)
(OECD 2006a). The inspection of the taxpayers‟ activities indirectly drives voluntary tax
compliance, and Ethiopia amended the tax laws with new provisions and procedures to assist the
taxpayers in complying with the self-assessment process so as to reduce tax evasion there by
increasing the revenue generated through tax, such as when the government replaced the sales
tax with value-added tax (VAT) and turnover tax.

Taxation in developing countries is challenging and has attracted increasing attention from
researchers and due to this, many problems have been observed, like poor tax administration tax
ignorance and insufficient use of technology and the potential amount of tax revenue has not
been collected in an efficient and equitable manner and Many individuals and businesses in
developing countries have limited knowledge and awareness of their tax obligations. This lack of
understanding can lead to underreporting of income, non-compliance, and a large informal
economy and Promoting tax education and awareness campaigns can help improve compliance
and encourage formalization (Eurodad 2013)

The effectiveness of a revenue body's audit activity relies on the legal framework's provisions for
obtaining information and imposing sanctions. A well-designed audit program can leverage these
powers to promote compliance across the entire taxpayer community, rather than just focusing
on the audited taxpayers. Ultimately, the goal is to identify non-compliance and collect the taxes
that should have been paid, and a revenue body needs sufficient powers to gather relevant
information during an audit. This includes the authority to request documents, records, and data
from taxpayers, third parties, financial institutions, and other sources. Adequate powers for
obtaining information enable auditors to thoroughly examine taxpayer compliance and verify the
accuracy of reported information.

However, the role of an audit program in modern tax administration extends beyond mere
verification and discrepancy detection. It now encompasses risk assessment, compliance
assistance, cooperative compliance, data sharing, and a focus on tax control frameworks,
behavioral insights, and real-time monitoring. These expanded functions aim to promote
voluntary compliance, improve audit efficiency, and ensure a fair and effective tax system.

There are three factors that contribute to a tax audit the random tax audit scheme simply gives
each self-reported income an equal chance of being chosen for verification and audit. In the cut-

3
off audit scheme audit, resources are employed to verify reports of the tax payers reporting the
lowest income levels, and the conditional tax audit shame requires, in addition to the reported
income source, information representing a noisy signal of the tax payer’s thorough income
earning potential at the lowest income levels. Badara (2012). The impact of a tax audit program
has significantly wider impacts than just raising revenue directly from audit activities. By
selecting the highest-risk cases, impact-detecting non-compliance, applying appropriate tax
sanctions, and publicizing the results of audit activity, either generally or specifically, taxpayers
are put on notice that attempting to avoid tax will result in a high likelihood of detection and the
imposition of significant tax sanctions (Netsanet 2014).

1.3 Statement of the Problem

Taxes are generally considered the primary source of revenue for governments. Taxes provide a
consistent and sustainable stream of income that allows governments to fund public expenditures
and provide essential services to their citizens, and the development of any nation depends on the
amount of revenue generated and applied by the government to public infrastructure, including
for the benefit of members of that society. According to Appah (2016), the development of any
nation depends on revenues generated by the government for the provision of infrastructure
facilities, but Ethiopia still mobilizes domestic resources, which is a crucial factor in the process
of poverty reduction and its overall economic development. Taxation is important because it
assists the government in collecting the appropriate tax revenue necessary for maintaining the
budget. Economic and financial order and stability to ensure that satisfactory returns are
submitted by the taxpayers to organize the degree of tax avoidance and tax evasion to certify
strict compliance with tax law by tax payers in order to improve the degree of voluntary tax
compliance. Taxes are fundamental to the existence of governments because tax revenues help
finance the majority of services that governments provide, including education, welfare, public
safety infrastructure, and other essential public services. Tilahun Yidersal (2014

According to Bhushan and Samy (2012), an inadequately administered taxation system is very
essential in generating revenue as well as increasing the tax base for the governments of
developed, developing, and transitional economies. On the contrary, under deficient and
inadequate tax administration, including insufficient and ineffective audit programs, the potential
amount of tax revenue in developing and transitional countries has not been collected in a proper

4
and equitable manner. It is unmoving under a number of challenges regarding its operation and
administration that are not yet resolved. Taxes and customs administrations are possibly near the
top of public-sector organizations with a high incidence of corruption. Corruption indeed carries
significant costs, impacting both governments and taxpayers.

Therefore it is very important to study factors that affect tax compliance in the country in order
to increase government revenue and assure economic stability. In country like Ethiopia where the
contribution of revenue to the overall economic development is believed to be very significant
more local studies on the assessment of taxpayers voluntary compliance with tax law are
required so as to provide the policy makers and the implementers in the area with relevant
information that can help them in designing the appropriate tax system Gelate (2019).

Most of the previous studies discussed the issue of the impacts of tax audits from different
viewpoints and in different study areas Agamas (2016) discussed the impact of tax audit on
improving taxpayer’s compliance. empirical evidence from Ethiopian revenue authority at
federal level data and concluded that the contribution of tax audit to improving taxpayer
compliance is significant among other measures taken by revenue authorities of the country and
other concerned parties should emphasize the role of tax audit by fulfilling the required staff and
qualifications to improve taxpayer compliance Ayneshet Agegnew's (2020) finding reveals that
tax knowledge and education have significant effect on tax compliance. According to Enddalew
and Ganfure's (2020) analysis of the Effects of tax audits on revenue generation tax audits and
the provision of training to the taxpayers are positive factors affecting the tax revenue generation
significantly however an illegal practice by the taxpayer is negative factor affecting the tax
revenue generation.

Ethiopia made different tax reforms to improve revenue generation, enhance the efficiency of tax
administration, and improve equity in the tax system. For instance due to high tax rates the
complexity of tax legislation complications in the procedures that taxpayers must follow in order
to pay taxes unsatisfactory treatment of taxpayers by tax officials taxpayer ignorance of the
benefit derived from public revenue negative image of public administration a fairly generalized
lack of social conscience on the part of the public and weakness in tax administration tax payers
were eager to evade the tax (Natsenat, 2014).

5
Tax evasion is an illegitimate action in which a person deliberately avoids paying a true tax
liability and least developed country like Ethiopia is in difficult situation to provide these basic
public goods and services from taxes due to weak tax collection taxpayer’s ignorance and
administration Those caught evading taxes are generally subject to criminal charges and
substantial penalties. Ferry drawn (2021) tax evasion and fraud are illegal intentional
misrepresentations of tax in a tax audit. It can involve the deliberate omission of falsification of
income revenue in older years that is invisible to the tax authority as a whole. This indicates the
reduction of income that lawfully belongs to the government and the people (OECD) (2006) to
mobilize and increase tax revenue collections and Tax audit play critical role in the
administration of tax laws through their detection of non-compliance and by serving as deterrent
to the wider population of taxpayers who might otherwise engage in non-compliance behavior.

However it is not often the case to collect the potential tax revenue in the country due to a lack of
awareness among taxpayers as well as a paucity of tax agency cooperation with the business
community. In addition, business owners do not have easy access to and clarification on
information about the tax laws the tax agencies do not also provide advisory services.

Therefore, it is very important to study various factors that can enhance taxpayer compliance.
Such as the tax sanction and the relevant statutory obligations of paying taxes as outlined in the
provisions of the tax act, and there is a lack of voluntary tax awareness regarding the tax type to
be imposed on their doings, the purpose and operation of tax motivation, the operation of tax
knowledge, the operation of volunteer tax audits, and the reporting and filing requirements of the
tax law. Additionally, it is important to consider factors like the type of tax to be imposed, the
purpose and operation of the tax audit, and the likelihood of a tax audit. Furthermore,
investigating the role of tax knowledge, education, and motivational tax factors in tax audits and
the requirements for reporting and filing taxes can provide valuable insights. Numerous
researchers have explored these aspects to determine how tax sanctions and voluntary factors
contribute to improving taxpayer compliance. Therefore, in order to a fill the research gap
resulting from inadequate in-depth investigations on the research problems, the researcher is
undertaking a study on the impact of tax audits on taxpayer compliance in the Jimma Zone
Revenues Authority.

6
1.4 Objectives of the Study
1.4.1: General Objective
The main objective of this study is to assess the impact of a tax audit on the taxpayer’s
compliance with the Jimma Zone Revenue Authority.

1.4.2 Specific Objectives

1. To identify the relationship between the reasons for a motivational and the level of on
taxpayer compliance.
2. To determine the relationship between the probability of tax audits and taxpayer
compliance
3. To examine association between the related factors of tax knowledge and taxpayer
compliance
4. To investigate the impact of tax sanction and taxpayer compliance.
5. To explore the relationship between volunteer tax and taxpayer compliance
6. To analyze the impact of tax penalties and taxpayer compliance

I.4.3 Research Question

 What is the relationship between a motivational and the level of on taxpayer compliance?
 What is the impact of the probability of tax audit and taxpayer compliance?
 What are the factors that impact tax knowledge and taxpayer compliance?
 What is the impact of tax sanctions and taxpayer compliance?
 What is the impact of tax audits related to tax volunteers and taxpayers’ compliance?
 What are the impacts of tax penalties and taxpayer compliance?

1.5: Significance of the Study

The study result is expected to be useful for identifying the impact of tax audits on taxpayers'
compliance and ensuring tax control. This study will provide information to tax payers and the
tax authority about the significance of the Jimma Zone Revenue Authority using this research to
assess the level and performance of tax audit learners, learn some lessons and build some
corrective measures for the weaknesses based on the recommendations to be forwarded. As a
result this research will be useful in assisting polyphonic makers' policymakers and other
concerned bodies in addressing voluntary tax compliance issues. In addition, it helps the revenue
office tax auditors see the level and performance of tax audit activities in relation to tax

7
compliance and revenue in the zonal. Moreover it may serve as a source of information they
may give some high points for stakeholders who would like to know more about the issue and
for scholars who are interested in undertaking further and more detailed studies in the future on
the topic.

1.6 Scope and Delimitation of the Study

The study attempted to assess the impact of a tax audit on taxpayers' compliance and revenues
authority. The study focuses on Jimma Zone head office and excludes the impact of a tax audit
on their daily lives as well as the factors that influence their compliance. The study analyzes the
impact of tax audit compliance on Jimma-Zone taxpayers. Geographically, the study is limited to
the Jimma Zone Revenue Authority. However it is better and more exhaustive for the study to
have a partner to incorporate. Nonetheless, in order to keep the study manageable and the
research report completed on time, the research investigations focus on payer soundness in the
Jimma revenue authority zone of regional governments. Tax compliance is affected by various
factors. Due to a lack of sufficient authority, station taxpayers and station tax tithes may be
excluded from the impact of a tax audit on tax compliance. Tax audits, tax penalties, and tax
knowledge Therefore, based on the above limitations, some of the variables used in the model
predicted payers’ voluntary tax compliance behavior

1.7 Operational and Definition of Terms

Tax Compliance: Tax compliance is defined as the ability and willingness of taxpayers to
comply with the. This refers to following administrative regulations for lodging and timely tax
payment. Tax laws, declare the correct income for each year and pay the right amount of taxes
on time.

Tax compliance refers to the act of meeting all the legal obligations and requirements set forth
by tax authorities. It involves accurately reporting income, claiming eligible deductions and
credits, and paying the appropriate amount of taxes within the prescribed deadlines. Tax
compliance is crucial for individuals, businesses, and organizations to fulfill their responsibilities
as taxpayers and contribute to the functioning of the public finance system.

ns, and, where taxes are due, making tax payments on time (Mohd 2011).

Probability often audit: the citizens will continuously pronounce their pay accurately in the
event that the likelihood of location is high. The likelihood of location plays a significant role in

8
announcing behavior, as citizens will declare everything if they see that they will be among the
gathering of people in that specific year (Riahi-Belkaoui, 2004)

Tax audit: Tax An examination of financial records to assess the correctness of the calculation
of taxable profit, to ensure compliance with witty fulfillments of the Income-tax Act, and also to
ensure compliance with tax conditions for claiming deductions under the Income-tax and
auditing-in-chis-environment.

Penalties of tax audit: A fine or penalty is money paid, usually to a government authority, as a
punishment for a crime or other offense. Tax incentives are aspects of tax law that are intended
to encourage or encourage a specific type of behavior Mittone,( 2006)

Tax Voluntary: Promotion of voluntary compliance with tax laws, regulations, and directives is
the key objective of the tax audit scheme that can be achieved by undertaking tax audits on
taxpayers who conceal their actual transaction revenues and overstate expenses.

Tax Sanctions: Taxation sanctions according to Mardiasmo (2016) are a guarantee that the
provisions of legislation - taxation invitations (taxation norms) will be obeyed. Alternatively, in
other words, is a deterrent so that taxpayers do not violate taxation norms. Also describes two
types of sanctions in the tax law, namely.

Tax Education: Previous literature supports the direct, positive relationship between educational
level and taxpayer compliance Miliron and ’Bryan (2000) also postulate that education level is
directly linked to a likelihood of compliance.

Taxpayer Compliance: The explained that compliance is the motivation of a person, group
or organization to do or not do something according to established rules, while taxpayer
compliance is an obedient, disciplined, and loyal attitude made by individuals or groups towards
legislation taxation in terms of fulfilling its tax obligations. As a climate of awareness of
compliance and fulfillment of tax obligations Rahayu, (2010), states it is reflected in situations

1.8 Organization of the Paper

This thesis has contained five chapters. The first chapter is an introduction which consists of a
background of the study, statement of the problem, research questions, and objectives of the
study significance of the study and scope and back ground of the study. The second chapter

9
presents a review of related literature, and the third chapter is researching methodology and the
fourth chapter four involves Data and . Chapter five contains conclusions and Recommendation

10
 CHAPTER TWO
LITERATURE REVIEW
2. Introduction
The purpose of this chapter is to review the literature on the impact of tax audits on tax
compliance behavior. The review he consists of three main sections. Section 2.1 presents an
overview of the theoretical aspects of the study. This is followed by an empirical literature
survey in Section 2.2. Section 2.3 summarizes the literature review and knowledge gaps.

2.1 Theoretical Framework

Definition of tax audit
As stated by Hornby (2019) tax means money that you have to pay to the government so that it
can pay for public services". He also defined an audit as an official examination of business and
financial records to see that they are true and correct. The Association of Chartered Certified
Accountants (2017) defined an audit as an exercise that provides assurance to the shareholders
and other stakeholders of a company on the financial statements because it is independent.

A tax audit examines whether a taxpayer has properly reported its tax obligations and met other
obligations. This is often more detailed and comprehensive than other types of reviews, such as
general desk reviews, compliance visits, and desk coordination programs (Organization for
Economic Co-operation and Development [OECD] 2012). Most taxpayers report their tax
obligations more accurately if they believe tax authorities can detect undeclared debts and, if
detected, can face severe penalties for doing so. There are different types of tax audits conducted
in different countries. Biber (2016) points out that there are various tax audit programs. These
are records review or verification; on-site review registration review advisory review records
review reimbursement review issue-based review comprehensive or complete review, and fraud
detection.
The respected bookkeeping standards and related monetary controls ensure that the accounts are
accurately classified within the balance sheet between resources and liabilities. Check that, on
the off chance that there are claims raised by the Open Organization that are not settled at the
closing date, they are accurately accounted for, and assess that the methods have been carried out
in agreement with great confidence, guaranteeing that the built-up lawful directions have been

11
complied with by Farooq (2018). Upon agreeing to the bookkeeping standards and the related
monetary controls, assess that the accounts are accurately classified within the balance sheet
between resources and liabilities. Check that, on the off chance that there are claims raised by the
Open Organization that are not settled at the closing date, they are accurately accounted for, and
assess that the methods have been carried out in agreement with great confidence, guaranteeing
that the built-up lawful directions have been complied with by Farooq (2018). Taxation is seen as
a burden that each citizen must bear to sustain his or her government because the government has
certain functions to perform for the benefit of those it governs. A definite definition of taxation is
that it is one of the sources of income for the state, such as to finance or run public utilities and
perform other social responsibilities (Mulugeta, 2019). By nature, taxation is also proportional,
progressive, or regressive. The character of taxation also implies as how the burden of taxation is
distributed among different section of the community.

2.2 Tax Revenue

Agumas, (2016) opined that revenue is an income collected by public authorities Federal, State
and Local Government from persons or body to finance expenditure. It is an income required by
government to finance its growing expenditure. According to Ojai, (2016) tax revenue is a levy
imposed by the government on the income and profit of individuals and companies respectively.
According to Fava and Dabari, (2017) cited in Agumas, (2016), taxation is the most important
source of revenue for modern governments typically accounting for ninety percent or more of
their income. This reflects that tax revenue is a compulsory levy imposed by the government
through its agencies on the income, consumption and capital of its subjects. These levies are
made on personal income, such as salaries business profits interest’s dividends, discounts and
royalties. It is also levied against company’s profits petroleum profits, capital gains and capital
transfer Ojai, (2016), Tax is a compulsory levy imposed on a subject or upon his property by the
government to provide security.

2.3 Tax Audit

Literature affirmed that tax audit is always triggered by suspicion of fraud, evasion and related
offences. According to Adams, (2001), tax audit is a level of enquiry aimed at determining what
level of fraud or willful default or neglect a tax payer perpetrated and to obtain evidence for
possible prosecution of the culprit. This implies that tax audit centers on determining some
unrevealed sources of revenue, pointing to gross non-compliance, or it may be about proof of

12
underpayment and fraud. Supporting this view, Ojai, (2016) defined tax audit and investigation
as an inspection of taxpayers’ business records so as to ensure that law and regulation were
maintained in the amount of tax reported. This reflects that the so aim of tax audit is to ensure
that laws and regulations regarding tax revenue are maintained by taxpayers with the aim of
increasing the revenue pool of the government.
Bassey, (2013) observed that tax audit is an essential compliance tool in most tax jurisdiction all
over the word as it maximizes the expected tax revenue to the government both in developed and
in developing countries. Expanding this notion, Okonkwo, (2014) cited in Ojo, (2016) revealed
that tax audit revolves examination of an individual or organization’s tax report by the relevant
tax authorities in order to ascertain compliance with applicable tax laws and regulations of state.
Tax audit is necessary because it help the government to collect taxes paramount in financing
budget and maintaining economic and financial order and stability. Similarly, Kircher, (2008)
submitted that ax audit ensure that satisfactory returns are submitted by the tax payers, to
organize the degree of tax avoidance and tax evasion, to ensure strict compliance with tax laws
by tax payers, to improve the degree of voluntary compliance by tax payers and to ensure that the
amount due is collected and remitted to government. War (2015) and Onuoha, (2016) revealed
that the following types of tax audit are relevant in ensuring tax compliance.

2.4 Tax compliance

The non-compliance of tax laws and regulations by taxpayers is a major concern for tax
administration in developing countries and obviously beacons an urgent solution because of the
indispensability of tax revenue to states’ development. Verboon and Van Dike, (2014) Reported
that the willingness of individuals to comply with tax laws and regulations without force is
known to be tax compliance. Confirming this, Badara, (2012) cited in Ojo, (2016) defined tax
remittance and compliance as the willingness of taxpayers to submit accurate, satisfactory and
complete returns in conformity with tax laws and regulations peculiar to a particular tax
jurisdiction. This implies that tax compliance revolves the readiness of taxpayers to cooperate
with tax laws and regulations without being forced or coerced.
Tax compliance is the degree to which a taxpayer obliges to tax rules and regulations willingly
without any use of force Alaran-Ajewole (2017). Corroborating this, Palil & Mustapha, (2011)
and compliance as taxpayers’ willingness to comply with tax laws, declare the correct income,
claim the correct deductions, relief and rebates and pay all taxes on time. Similarly, tax

13
compliance and willingness of taxpayers to comply with tax laws, declare the correct income in
each year and pays the right amount of taxes on time Obazee (2016). This implies that tax
compliance is the taxpayers’ ability and willingness to comply with tax laws that are determined
by ethics, legal environment and other situational factors at a particular time and place.

2.5 Rising of Income:

The classical work of a charge framework is the raising of the income required to meet
government use. This pay is required to meet consumption, which is either the arrangement of
products and administrations that individuals in the open cannot provide, for example, defense,
law, and instruction, or the arrangement of products and administrations that the government and
state governments believe are far superior to be provided by themselves, for example, wellbeing
administrations and instruction

2.6 Riches Redistribution:

In these cutting-edge times, extraordinary accentuation has come to be set on the objective of
redistribution of riches. This has two very particular shapes. The primary is the teaching that tax
collection ought to be based on capacity to pay and is summarized by the saying that "the most
noteworthy burdens ought to be borne by the broadest shoulders." The moment frame
presupposes that the display dispersion is unjustifiable and concludes that this ought to be fixed
subsequently. This moment's rule sees seizure as an authentic objective of taxation.

2.7 Economic Cost Solidness

It has been said that the preeminent vital reason a government has for saddling its citizens is to
supply a sensible degree of fetched strength within the nation summer (1980).The majority of
contributions by open and private fragments without charges result in high ask, which is
inflationary. In such a circumstance, the basic work of charge appraisal is to diminish the
government has two choices, which are to extend government investing with expanding charges
or to diminish charges by clearing out government investing stable. Economic Development and
Development We have begun our discourse of improvement by tending to exceptionally broad
issues relating to the concept of advancement. Be that as it may, much of the writing and
considering almost development centers on financial matters. Undoubtedly, development and
economic development' have frequently been treated as synonymous concepts. The financial
advancement of a nation or society is more often than not based on spending stability.

14
2.8 Economic Growth and Development
We have started our discussion of development by addressing very broad issues relating to the
concept of development. However, much of the literature and thinking about development
focuses on economics. Indeed, development and economic development' have often been treated
as synonymous concepts. The economic development of a country or society is usually
associated with amongst other things rising incomes and related increases in consumption,
savings, and investment Ballgame, (2014). Economic growth means an increase in real national
income or national revenue. Economic development means improving the quality of life and
living standards. Measures for literacy life expectancy, and health care Ceteris paribus, we
expect economic growth to allow more economic development, which increased his GPI But
since the mid-1980s. Of course, there is far more to economic development than income growth;
for if income distribution is highly skewed, growth may not be accompanied by much progress
towards the goals that are usually associated with economic development (GDP in the United
States in (2020).
The in general control or administration of the economy rests on the central government and tax
collection plays an imperative part in this heading. In order to keep up sensible cost stability,
governments have decided to advance the near-full business of all the assets of the nation
counting human assets, labored guarantee a palatable rate of financial development. Financial
development and improvement programs are adapted towards raising the standard of living of
the masses of a nation through the enhancement of their financial and social conditions. Tax
collection: in one way or another debilitates delays decreases utilization while allowing for
private ventures to be saved. This is often as if it were conceivable when the fundamental
necessities of life, including security, law and order, instruction, and communication, are given
by the government. Thus, the national improvement plans of creating nations are considered to
be important. This objective will be of awesome help to Nigeria, where there's mass
unemployment in the labor force and economic resources. GDP growth rates in the United States
(from 2003). According to Soy ode and Kajola (2017), the responsibilities or objectives of the
presidency using taxation are as follows: -
Revenue Generation: the first objective of a contemporary legal system is the generation of
revenue to assist the government in financing ever-increasing public sector expenditure.

15
The provision of merit goods: a very important objective of the legal system is the promotion
of social, economic, and good governance through the provision of merit goods. Some examples
of merit goods are health and education. Private participation in these activities should be
encouraged. If left entirely in their hands, private enterprises will push the value of providing
education and health services beyond the reach of ordinary people. According to Soy ode and
Kajola (2017)the following are the responsibilities or objectives of government through taxation:
Revenue Generation: The primary objective of a modern tax system is generation of revenue to
help the government to finance ever-increasing public sector expenditure.
Provision of Merit Goods: An important objective of tax system is the promotion of social,
economic and good governance through provision of merit goods. Examples of merit goods are
health and education. These must not be left entirely to private hands though; private
participation should be encouraged. Private enterprises will push the cost of providing education
and health services beyond the reach of common people if left entirely in their hands.
Provision of Public Goods: Revenue generated from tax can be used to provide commonly
consumed goods and services for which an individual cannot be levied the cost of the goods or a
service consumed is one of the functions of government. Examples of public goods include: -
I. Internal security is achieved through the enforcement of law and order by police and other
security agencies
II.. External security through defense against external aggression by the Army, Navy, and Air
Forces; and
III. Provision of street lights and roads.
Discouraging Consumption of Demerit Goods: Tax can be used to discourage consumption of
demerit or harmful goods like alcohol and cigarette. This is done to reduce external costs to
society. These external costs include health risks and pollution. Redistribution of Income and
Wealth: The tax system is a means of ensuring the redistribution of income and wealth in order
to reduce poverty and promote social welfare. For example, taxation can be used as economy a
regulator for the promotion of economic stability and sustainable growth through fiscal policy
the government has the responsibility to fight flat inflation, unemployment, and the structure of a
business. A tax system is one of the means of achieving this.
Harmonization of Economic Objective: Harmonization of diverse trade or economic objectives
of different countries is one of the modern objectives of tax systems. For example, e the ax

16
system can be used to achier eve the, Philosophy of the single market in ECOWAS or Africa so
as to provide for the free movement of goods/services capital and people between members’
states.

2.9 The Roles of the Taxpayer Audit Program

The tax audit program of a revenue body performs a number of important roles that effectively
carried out and can make a significant contribution to improved administration of the tax system.
These roles are described briefly hereunder:
Promote voluntary compliance: The primary role of the audit program is to promote voluntary
compliance by taxpayers with the tax laws. It seeks to achieve this by reminding taxpayers of the
risks of noncompliance and by engendering confidence in the broader community that serious
abuses of the tax law will be detected and appropriately penalized. Auditing is used for more
than just verification. It is well acknowledged that a tax audit entails an investigation to ascertain
whether a taxpayer has accurately reported and estimated their tax liabilities. However, an audit
program must perform more than only check a taxpayer's reported responsibilities and look for
discrepancies between a taxpayer's declaration and supporting records in modern tax
administration.ro documentation.
Detect non-compliance at the individual taxpayer level: By concentrating on major areas of
risk. Unreported cash income and those individual taxpayers most likely to be evading their
responsibilities, audits may bring to light significant understatements of tax liabilities, and
additional tax revenue collections. Gather information on the health of the tax system including
patterns of taxpayer’s compliance behavior. 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.
Gather intelligence: Audits may bring to light information on evasion and avoidance schemes
involving large numbers of taxpayers that can be used to increase major counter-abuse projects.
Educate taxpayers: Audits can assist clarify the application of the law for individual taxpayers
and to identify improvements required to record keeping and thus may contribute to improved

17
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 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.

2.10 Government Revenues Scope and Extent

According to the OECD (2016), government revenues are sourced from various tax and nontax
receipts. The country papers bring out the dimensions of these two sources, which in turn
influence the areas of audit priority. These are tax and non-tax revenues. Government revenues
are largely dependent on taxes legislated through various tax statutes. However, the spread of the
two sources of revenue, tax and non-tax, varies from country to country. The scope of audit
activities varies across countries, in part as a result of the system of assessment in place. There
are two generally accepted systems of tax assessment applied worldwide administrative
assessment and self-assessment in around half of the OECD countries. Administrative
assessment is employed to varying degrees in the administration of personal income tax and
corporate profits/income tax. All countries administer VAT under self-assessment principles.
Assessment systems operate on the principle that all tax returns should be subject to a degree of
technical scrutiny before a formal assessment is sent to the taxpayer. In practice, however, much
of the scrutiny previously undertaken by technical staff has been replaced in many countries by
the use of automated screening techniques to identify returns requiring scrutiny before a formal
assessment is issued.
According to the Ethiopian Federal Inland Revenue Authority’s tax assessment and audit manual
(2016) an assessment is basically an initial review by tax official of the tax declarations and
information provided by tax payer and a verification of the mathematical and technical accuracy
of the declared tax liability shortly after the submission of the declaration. The initial review also
includes the application of various risk criteria to determine possible tax underpayments and the
subsequent selection for tax audit.

18
2.11 Resources for the Tax Audit Function
To conduct the day-to-day business of revenue administration, revenue bodies typically have a
limited number of resources at their disposal. Given the many tasks to be performed and the
inevitable decisions that must be made on priorities, a process is required to determine how those
resources are to be allocated. Regardless of how the overall budget for audit work is determined;
a critical issue for the audit function is how those resources will be distributed among the various
taxpayer segments. Determining how resources might best be allocated is a key element of a
revenue body’s strategy for compliance improvement and is dealt with in the following section.

2.12 Tax Non-Compliance

In contrast with tax compliance, tax non-compliance is defined as a taxpayer’s failure to remit
the correct amount of tax, perhaps on account of the complexity or maybe contradictions within
the tax legislation or tax administration procedure Jackson and Milliron, (1986 Kesselman, 1994:
Kapila and Jabbers, (2003) Noncompliance is also defined as a taxpayer's failure to report
correctly the specific income, claim deductions and rebates, and remit the specific amount of tax
payable to the tax authority on time (Kichler, 2012). Some studies also segmented taxation non-
compliance into unintentional and intentional behavior Allingham and Sandman (1972).

2.13 Tax gap

As none of the studies have tested income level of the taxpayers concerning tax compliance in
Sri Lanka, this study attempts to fill that gap and help to understand how the level of income
impacts the tax compliance decision of taxpayers.
The tax gap was defined by different professionals. Adams (2021) defines the difference between
the taxes that the law seeks to gather and the money that is, of course, collected. Andreoni (1998)
defines a tax gap as if there has been a 100% compliance difference between the particular
revenue collected and the amount that may be collected, though there are some variations. Tax
compliance is also seen in terms of minimization and evasion. The activities are conventionally
distinguished in terms of legality, with avoidance bearing on legal measures to scale back
liabilities and evasion to illegal measures. James (2019) describes minimization because the legal
manipulation of an individual’s affairs so as to cut back tax. However, if taxpayers attend
inordinate lengths to scale back their liabilities, this might hardly be considered ‗compliance„,
whether or not it was within the letter of the law. Since taxation isn't always precise, Seldon

19
(1979) in James (2020) has also coined the term nonpayment „to describe circumstances where
the law may well be unclear.

2.14 Factors Determining Tax Compliance Behavior

Jackson and Milliron (1986) listed fourteen main factors that have influenced tax compliance as
discussed by various researchers. These factors are age, gender, education, income, occupation
or status, peers or other taxpayers influence, ethics, legal sanction, complexity, relationship with
taxation authorities, income sources, and perceived fairness of the tax system, possibility of
being audited and tax rate. Various researchers have listed factors that influence tax compliance,
such as demographics, income, compliance cost, and tax agents (Mohani, 2003), in addition to
moral or ethical factors Kasipillai 2003).
Organizational Strength of Tax Authorities According to Bird and Oldman (1967) no tax will
work effectively, unless its administrators maintain an aggressive attitude with respect to the
correctness of the taxpayer’s actions. Some taxpayers will fail to file or make mistakes through
ignorance or neglect; others will deliberately cheat. A passive attitude by the authorities towards
these errors and falsifications will soon undermine the entire structure, since the diligent and
honest taxpayers will be forced to the level of the careless and dishonest. A tax administration
that seeks compliance must protect those who comply, or else compliance will not be
forthcoming. Most commentators, policy makers, and tax administrators agree that voluntary.
According to Bird and Oldman (1967) no tax will work effectively unless its administrators
maintain an aggressive attitude with respect to the correctness of the taxpayer’s actions. Some
taxpayers will fail to file or make mistakes through ignorance or neglect others will deliberately
cheat. A passive attitude by the authorities towards these errors and falsifications will soon
undermine the entire structure since the diligent and honest taxpayers will almost in self-
defensive forced to the level of the careless and dishonest. A tax administration which seeks
compliance must protect those who comply or else compliance will not be forthcoming. Most
commentators, policy makers and tax administrators agree that voluntary compliance would be

greatly facilitated by the existence of a simplified tax structure. Infrastructure is the"underlying

structure" of a country and its economy, the fixed installations that it needs in order to function.

2.15 Obligations of the Taxpayer

A person who evades the declaration or payment of tax, commits an offence and in addition to
any penalty may be prosecuted and be subject to a term of imprisonment of not less than five (5)

20
years. If any amount of tax not paid by the due date, the person liable is obliged to pay interest
on such amount for the period from the due date to the date the tax is paid. The interest rate is set
at 25% over and above the highest commercial banks’ lending interest rate that prevailed during
the preceding quarter. A person who fails to file a timely return is liable for a penalty equal to
5% of the amount of tax underpayment for each month portion thereof during which the failure
continues, up to 25% of such amount. The penalty is limited to 50, 000 Birr for the first month in
which no return.
Tax payers: in income taxation theory, a tax payer refer to any person who is liable by the
income tax law of a country to pay tax to the government in accordance with the requirement of
the tax law of the country Misrak Tesafye, (2014 2)
Category “A” taxpayers: any business income tax payers or rental income tax payers having
annual gross turnover of Br.500,000(five hundred thousand) more(i.e. annual gross turnover less
than equal Br.500,000). Income tax regulation 78/2002, article 18.
Category “B” tax payers: business income tax payers or rental income tax payers with no legal
personality and whose annual gross turnover is more than Br.100,000 but less than
Br.500,000(i.e. Br.100,000

2.16 Awareness level of Taxpayers

The mindfulness level of citizens James (2000) contends that the standard is ordinarily to comply
instead of not to comply. As of now, pointed out, for an assessment framework to be viable, the
majority of citizens need to comply. As a result, there may be more significant gains in assisting
essentially compliant citizens to meet their financial obligations than in investing more assets in
pursuing the minority of non-compliance. Numerous citizens could be willing to comply in full,
but are incapable of doing so since they are not mindful of, or don't get it, their full
commitments. Indeed, on the off chance that such assessed payers get their commitments, they
may not know how to meet them or may be incapable of doing so for other reasons. On the other
hand, other journalists, such as Smith and Kinsey (1987), contend that charging noncompliance
is a purposeful behavior.

2.17 Responsibilities of Taxpayer

According to Modugo and Anyaduba (2014), OECD, taxpayers are expected to be courteous, fair
and honest; they must ready to provide reasonable facilities, information and assistance during an
audit assignment. This includes giving access to tax audit officers to the business premises,

21
providing information and making available relevant documents and records required for the
purpose of the exercise. Promptly respond to all queries. If the questions raised are ambiguous,
he must seek clarification from the tax audit official without delay. Also, the taxpayer may also
be a query on personal matters such as personal expenses, savings, bank accounts, assets, etc.
Taxpayers can request that their tax agents be present during an interview in order to facilitate
the audit process. The taxpayer is not expected to suspend or stop business activities during the
audit assignment.
Therefore, giving full cooperation and Asian Journal of Finance and Accounting ISSN support to
make sure that the assignment does not unnecessarily prolonged or linger and ensure that any
disruption to the business is kept at a minimum furthermore, taxpayers are not allowed under any
law to transact business with the audit officer while the exercise lasts other than on normal terms.
Taxpayers should avoid making payment to audit officers. Any tax payment arising out of an
audit adjustment must be payable directly to the official revenues bank account at the designated
bank or any Collection Branch of the internal revenue service

2.18 Theory of Planned Behavior

The theory of planned behavior states that the behavior of individuals within the society are
under the influence of definite factors, originate from certain reasons and emerge in a planned
way Erten (2002) It was assumed that the ability to perform a particular behavior depends on the
fact that the individual has a purpose towards that behavior. Therefore, it was asserted that the
factors that determine the purpose towards that behavior are attitude towards behavior, subjective
norms and perceived behavioral control. Ajzen (2002) says that these factors are under the
influence of behavioral beliefs, normative beliefs and control beliefs. It is also asserted that
sociological and psychological factors have proved to be important in understanding the high
levels of tax compliance. In such analyses, concepts such as trust in authorities perceived fairness
of the system moral considerations and norms are added to theory and are used to promote better
understanding of tax compliance.

2.19 Empirical studies

There are several theoretical and empirical studies on selected tax audits and taxpayers
compliance; these studies provide mixed results on the relationship between tax audits and
taxpayers compliance. There are many speculative and observational considerations in
evaluating audit and survey compliance. These considerations give blended responses to the

22
relationship between assessment review and charge compliance. Many studies have been
conducted on tax administration in developed and developing countries, with various
conclusions. Onoja and Warere (2015) undertook a study to examine the effects of tax audits on
revenue generation. Federal Revenue Service Abuja experience it was a survey study, and
questionnaires were used to generate the data. The hypotheses were tested using an analysis of
variance (ANOVA). Findings revealed that tax audits have significant effects on revenue
generation in the federal Inland Revenue service and that tax audits have a positive relationship
with revenue generation in the federal government revenue service.
Ayneshet Agegnew (2020) analyzes the impact of tax audits on tax compliance. Study on
selected Hawassa City Administration, South Nations, Nationalities, and Peoples’ Regional State
of Ethiopia This study aimed to persuade all taxpayers to comply with the regulations of a tax
system. The population of the study area is 50 audit officers. Descriptive statistical tools and
correlation and multiple regression analyses were used in analyzing the collected data. The study
findings showed that the probability of a tax audit and tax knowledge and education have a
positive effect on the level of tax compliance. Similarly, fines and penalties have a positive effect
on the level of tax compliance. The study provides some preliminary evidence that the
probability of a tax audit, imposing fines or penalties, and providing tax knowledge and
education will improve tax compliance.
Mulugeta's (2019) study on the assessment of tax audits on tax compliance and revenue in
Ethiopian revenue and customs authorities: the case of the east Addis Ababa branch office Based
on this, the study examined the effects of tax audits on tax compliance and tax revenue in the
ERCA East Addis Ababa branch office. It specifically investigated the effect of comprehensive
audits, issue audits, back duty audits, and de-registration audits on tax compliance and tax
revenue in the ERCA East Addis Ababa Branch office.
These studies provide mixed reactions to the connection between tax audits and tax compliance.
Alma James and McKee (2018) investigated the application of experimental methods to look at
individual compliance responses to a certain probability of audit and concluded that the
compliance rate rises if a private knows he is going to be audited and also falls if he knows he
won't be audited. Semrad, Blumenthal, and Christian (2021) examined randomly selected
taxpayers, informed them that their returns were closely examined, and located evidence of
taxpayers behavior changing in response to an increased probability of audit, although the

23
responses don't seem to be uniform among different groups of taxpayers. Mittone and Luigi
(2006) investigated whether early experience of audits in taxpayers tax lives could be a more
practical In Ethiopia, despite the penalties put in place to ensure tax compliance, taxpayers may
still not fully comply since the penalties are either weak or poorly enforced. This means that
sanctions severity does not deter tax compliance

2.20 Probability of Detection and Tax Compliance

Allingham and Sandmo (1972) claimed that citizens will continuously pronounce their pay
accurately in the event that the likelihood of location is high. The likelihood of location plays a
significant role in announcing behavior, as citizens will declare everything if they see that they
will be among the gathering of people in that specific year (Riahi-Belkaoui, 2004; Richardson,
2008). Sherrod, Lumenthal, and Christian (1998) investigate the relationship between the
probability of being assessed and the citizens' responses. The attempt illustrated that taxpayer
behavior changed with respect to level of compensation, and the probability of being surveyed
played a basic role in choosing taxpayers shirking behavior.
However, the course of the relationship, positive and negative, was not clearly expressed by
Slemrod et al. (1988). Andreoni (1998) found that earlier review involvement and continuous
contact (connection) with the assessor influenced and increased compliance among citizens. On
the other hand, Youthful (1994) and Slemrod et al. (2018) found that the likelihood of being
examined once more was negatively related to compliance behavior. Bergman (1998), cited in
Palil and Mustapha (2019), explores charge compliance behavior in Argentina utilizing two
approaches: measures to improve commercial citizens and broad campaigns and reviews, which
are able to increase the likelihood of location among individual citizens. It is proposed that as the
number of reviews and the likelihood of discovery expand, citizens will be energized to comply
with assessment laws and precisely report their income.

2.21 Awareness of Offences and Penalties and Tax Compliance

Concurring to Palil and Mustapha (2011) speculative monetary analysis displayed by Allingham
and Sandmo (1972) has clearly shown that disciplines as well as survey probability have an
influence on survey compliance. The greater the discipline and potential survey probability, the
more visible the handicap for potential evaluate evasion. However, more complex models, for
example, critical pro theory and beguilement speculation, suggest that disciplines and survey

24
probability are difficult to depict in compliance models as the comes around Are determined
endogenously through tax cheating (Andreoni et al., 1998).
They suggested that to overcome the indignity, it is necessary to control the enforcement
environment artificially by using laboratory experiment methods. This has been evidenced by
Beck, Davis, and Jung (1991) and Becker, Buchner, and Sleeking (1987) through their
experiments in which they found that penalty rates affect tax compliance in accordance with the
theory In any case, an exploratory approach does restrain the environment to a limited viewpoint
compared to the genuine world. Bryman and Bell (2003) suggested that an experimental
approach is only suitable for a study that can be addressed with a high degree of experimental
arrangement and control. Nevertheless, an experimental approach for a tax compliance study
might show a smaller effect or influence than direct observation (Alm,Jackson, and McKee,
1992). In addition, Marrelli (1984), Wang and Conant (1988), Gordon (1990), and Marrelli and
Martina (1988) found that penalty rates have a negative association with evasion. In contrast,
however, Virmani (1989) indicated results the other way around, in which penalty rates had a
positive association with evasion, meaning that higher rates did indeed encourage people to cheat

2.22 Tax Education

Previous literature supports the direct, positive relationship between educational level and
taxpayer compliance (Jackson and Miliron 1986). Chan, Troutman, and ’Bryan (2000) also
postulates that education level is directly linked to a likelihood of compliance. Educated
taxpayers may be aware of non-compliance opportunities, but their potentially better
understanding of the tax system and higher level of moral development promote a more
favorable taxpayer attitude and greater compliance.

2.23 Tax Audit and Tax Compliance

Tax audits have been discussed in relation to tax compliance. Numerous studies, such as Palil
and Mustapha (2011) and Dubin (2004), report that tax audits have a positive impact on tax
evasion. These findings suggest that in self-assessment systems, tax audits can play an important
role, and their central role is to increase voluntary compliance. Pail and Mustapha (2011) argued
that audit rates and the thoroughness of the audits could encourage taxpayers to be more prudent
in completing their tax returns, reporting all income, and claiming the correct deductions to
ascertain their tax liability. In contrast, taxpayers who have never been audited might be tempted
to underreport their actual income and claim false deductions. Butler (1993), cited in Pail and

25
Mustapha (2011), also found that tax audits can change compliance behavior from negative to
positive. These findings complement the Witte and Woodbury (1985) and the Beron, Tauchen,
and Witte (1988) studies. In their study of small proprietors, Witte and Woodbury found that tax
audits play a significant role in tax compliance.
They did not empirically test individual taxpayers, thus leaving room to conduct research in this
area. While Butler (1993) and Witte and Woodbury (1985) found significant results, Baron
(1988) found a contradictory result. They reported that audits did not significantly correlate with
evasion for all groups they studied. Audits were found to be more effective in encouraging
taxpayers to overclaim deductions than in encouraging them to report actual income correctly
(Beron, 1988). From another point of view, Evans, Carlon, and Massey (2005) studied the tax
compliance of small and medium-sized enterprises in Australia. Their objective was to examine
the relationship between the record-keeping practices of SMEs and their potential exposure to
tax compliance problems.

2.24 Voluntary tax compliance

Promotion of voluntary compliance with tax laws, regulations, and directives is the key objective
of the tax audit scheme that can be achieved by undertaking tax audits on taxpayers who conceal
their actual transaction revenues and overstate expenses. Tax audits aim to detect non-
compliance by taxpayers and encourage voluntary compliance by the taxpayers. Researchers
have determined that a number of factors affect the compliance of taxpayers. Therefore, there is
no single theory that wholly elucidates the condition of tax non-compliance behavior among
taxpayers. So, it is recommended that theories from sociology, psychology, and economics are
useful to elucidate taxpayer’s compliance behavior. Traffic Jabbar (2015). These theories fall
into, but are not limited to, the optimal tax theory, political legitimacy theory, tax moral theory,
and Allingham and Sando theory. The theory of optimal taxation commonly includes the theory
of optimal product and service indirect taxes and the theory of optimal income (direct) taxes.
It is argued that the primary sources of political legitimacy are placed on the yield side of the
political party and done with excellence. It can be characterized by the absence of bribery,
discrimination, and disobedience to the principle of independence in exercising political power,
which serves to give political legitimacy. The means by which society's management is
organized is not just an inquiry into economic justifiability and managerial competence.
Moreover, residents appear to have solid customs about what to expect when they encounter

26
government representatives who implement public rules. Rothstein, (2009). Payment of tax is
considered the moral responsibility of taxpayers, which is a justifiable reason besides the
legislatively binding issues. It is supposed that nobody wants to pay taxes; however, everyone
recognizes that taxes are vital to the government's ability to fulfill the needs of the citizens.
Taxpayers will not be willing to pay tax if there is no enforcement strategy that requires the cost
of collection and deterrence. Researchers have worried that tax morale, perceived as the essential
drive to pay taxes, is a primary tool that contributes to elucidating tax compliance. But ax morale
itself has a number of sides that are affected by a cultural aspect, the official procedure in which
the government functions, and a policy and administration aspect. Kirchgässner, (2011)
According to Ellingham, as the penalty rate rises, the amount of income declared also rises, and
in turn, the increment of the penalty rate increases the amount of revealed income. The higher the
probability of a tax audit, the higher the level of the taxpayer’s trustworthiness. The key
parameters of the model are individual income, tax rates, penalties, and the probability of a tax
audit. Some assumptions of the AS model differ from tax guidelines in practice;

2.25. Tax Sanctions

Taxation sanctions according to Mardiasmo, (2016) are a guarantee that the provisions of
legislation - taxation invitations taxation norms will be obeyed. Alternatively, in other words, is a
deterrent so that taxpayers do not violate taxation norms. Also describes two types of sanctions
in the tax law, namely. The administrative sanction is payment of losses to the state, divided into
three types of sanctions, namely fines, interest, and increase Dharma and Arahant (2014)
criminal sanctions torture or suffering which becomes a final tool or legal fortress used by the tax
authorities so that tax norms are obeyed Susilawati and Budiartha (2013) kinds of criminal

2.26 Taxpayer Compliance

Taxpayer Compliance explained that compliance is the motivation of a person, group or
organization to do or not do something according to established rules, while taxpayer compliance
is an obedient, disciplined, and loyal attitude made by individuals or groups towards legislation
taxation in terms of fulfilling its tax obligations. As a climate of awareness of compliance and
fulfillment of tax obligations Rahayu, (2010), states it is reflected in situations where Mardiasm,
(2016) Taxpayers understand or try to understand all the provisions of tax laws and regulations.
Taxpayers complete the form thoroughly and clearly. Taxpayers calculate the amount of tax
owed correctly. Taxpayers pay the tax due on time.

27
2.27 Summary of literature review and knowledge gap
Tax compliance has been an important subject of research in a large number of developed and
developing countries. Since each country has its own approach to managing tax compliance
levels and has different tax laws and regulations, the factors impacting tax compliance behavior
appear to vary among countries. Jimma Zone Revenue Authority To the best of the analyst's
knowledge, there is a standard for the rate of review technique and suitable review examination
procedures to be utilized for checking the exactness of charge returns in line with the level of
economic and technological advancement, developing countries in party tax compliance
behavior, the probability of a tax audit in particular, penalty and tax education, tax knowledge,
and tax volunteer compliance on improving tax compliance. In addition, most prior studies
regarding tax compliance issues tried to examine the factors affecting compliance improvement
and fraud detection.
However, to the researcher's knowledge, it is possible to conclude that although there have been
a number of studies on tax audit-related issues both in developed and developing countries in
Jimma Zone South Western Regions and Jimma Ethiopia Revenue in particular, there are no
studies that exhaustively examine factors affecting tax compliance. In Ethiopia, there are
exceptions regarding tax audits on tax compliance, according to Desks Kasha (2010). Even these
studies did not exhaustively assess the impact of tax audit activities in Ethiopia. The study by
knowledge and educational tax of audit (2010) will be mainly focused on factors affecting
voluntary tax compliance. This study conceptualizes that tax compliance could be affected by the
probability of a tax audit, tax knowledge and education, fines and penalties, and sanction
severity. The study is therefore intended to test the nature and strength of these relationships.

2.28 Conceptual Framework

This study conceptualizes that tax compliance could be affected by the probability of a tax audit,
tax knowledge and education, tax volunteer motivation, and tax audit fines and penalties. The
study is therefore intended to test the nature and strength of these relationships. The components
of a tax audit as depicted above are tax motivation, probability of a tax audit, back duty audit,
and registration audit. The purpose of this study is to ascertain how these variables predict
taxpayer compliance and remittance. As noted earlier, no single researcher has used these
variables to examine the level at which tax payers comply with tax revenue rules, regulations,

28
 and remittances. This is the gap that the current study seeks to fill. It is expected that all forms of
tax audit would positively influence tax compliance and remittance

2.29 Independent and depends variables

Independent variable Dependent variable

Tax audit
Tax Compliance
Tax Motivation
Probability of Tax audit
Tax Knowledge and Education
Tax sanction severity
Tax Volunteer
Fines and Penalties

Figure 2.1 conceptual Framework (2023) independent and dependent variables

29
 CHAPTER THREE
RESEARCH METHODOLOGY

3. Introduction
This chapter presents various ways in which the study is designed and conducted. These include
the area of the study, sample size selection, and study population, method of data collection,
processing, and analysis. These methods of data collection include questionnaires and interviews
with some of the respondents. Again this same chapter indicates some major problems
encountered by the researcher in carrying out the research. It explains why the researcher
collected data, where it was collected, and how it was collected and analyzed.

3 .1 Research Design
Research design refers to the overall plan, structure, and strategy that guide a research study. It
outlines the specific steps and procedures that will be followed to address the research questions
or objectives. The research design provides a framework for collecting, analyzing, and
interpreting data in a systematic and organized manner and utilizing data in order to obtain the
desired information, as well as an assumption for a detailed method of data collection and
analysis. When conducting a study, the researcher has to make a choice about what method
should be used. According to Creswell, W. John, and Creswell (2018) there are two broad
quantitative and qualitative approaches.

In this study an explanatory sequential design is used Because Explanatory sequential mixed
methods is a research design where the researcher first conducts quantitative research analyzes
the results and then builds on the results to explain them in more detail with qualitative research.
Due to the fact that knowledge and perception of tax officers are related to group dynamics,
group values and norms, and internal factors that positively and negatively affect their
performance on tax compliance, a semi-structured key informant interview was conducted with
officials of the bureau in order to understand the views, trends, and challenges of the
management. Therefore, this study uses explanatory research to assess the impacts of tax audits
on selected taxpayers' compliance with the Jimma Zone Revenue Authority. For this research to
utilize the strengths and overcome the weaknesses of qualitative and quantitative approaches, a
mixed research method is employed. The primary data was obtained through the use of self-

30
administered questionnaires while the secondary data was obtained from the official reports on
the internet and published and unpublished journals.

Quantitative research is a systematic approach to collecting and analyzing numerical data to gain
insights, understand patterns, relationships, and trends. It involves the use of measurable data and
statistical methods to draw conclusions and make generalizations about a population or
phenomenon under study. Quantitative research typically follows a structured research design,
where researchers formulate hypotheses or research questions, collect data through surveys,
experiments, or other data collection methods, and analyze the data using statistical techniques.
The results are then presented in the form of tables, charts, graphs, or statistical summaries. This
approach is often used when the research questions involve measuring variables and quantitative
research provides objective and numerical data that can be statistically analyzed.

Qualitative research aims to explore and understand phenomena in-depth by gathering rich, non-
numerical data. It involves collecting data through methods such as interviews, observations,
focus groups, or document analysis. The data collected are typically analyzed using techniques
like thematic analysis, content analysis, or narrative analysis to identify themes, patterns, and
meanings. Qualitative research is used when the research questions involve understanding
experiences, perceptions, meanings, and social or cultural contexts. it provides detailed and
contextualized information that facilitates deep understanding and interpretation.

Descriptive surveys are commonly used to gather current information about a particular
population or group. They aim to describe or document the characteristics, opinions, behaviors,
or attitudes of the participants at a specific point in time. Explanatory research is a type of
research design that aims to provide explanations for observed phenomena, problems, or
behaviors. It goes beyond simply describing or documenting a situation and delves into
understanding the underlying causes, relationships, or mechanisms that contribute to the
observed outcomes and Overall, explanatory research plays a crucial role in advancing
knowledge and providing deeper insights into the complexities of various phenomena, problems,
and behaviors. The impact of tax audits on taxpayers compliance in the Jimma Zone Revenue
Authority

.
.

31
3.2 Target Population and Sampling
The study population under this research consisted of all tax auditors' division staff members
employed at the Jimma Zone Revenue Authority, including both tax auditors and tax officers in
the tax auditors' division. This group likely includes individuals responsible for conducting tax
audits and ensuring compliance with tax regulations within the specified geographical area. By
focusing on this particular population, your research findings and conclusions can be directly
applicable to the tax auditors' division staff in the Jimma Zone Revenue Authority. Tax Officers:
This group included a total of 22 workers in the Jimma Zone Revenue Authority. Their specific
roles and responsibilities within the organization are not explicitly mentioned.
The specific components of the study focus on and to which the findings of the research are
generalized, Peter (2017) The target population for the study was 221 (199) tax payers and
individuals, which included tax auditors, quality controllers, heads of managers, and tax officers
working in the Jimma Zone Revenue Authority. However, the sample size for the research was
142 respondents, suggesting that not all members of the target population participated in the
study. The study focused on tax audit staff working in the five sub-cities of Jimma, namely Agro,
Limmu, Dedo, and Mana Jimma Zone. The findings of the research were likely generalized to
the broader population of tax auditors and related personnel within the Jimma Zone Revenue
Authority based on the sample of 142 respondents.

3.3 Sampling and techniques

Subsequent to the justification of the research methodology a sample design was chosen to
collect relevant information for the research problem. In selecting a valid sample tax auditor, the
Jimma Zone Administration Revenue Authority office tax audit and taxpayers department is the
unit of the target population. The JZRA was purposefully selected as the study unit because they
are responsible for strategic decisions at the tax payer level.

The random sampling method and lottery method sampling technique will require employees to
select sample sizes from the Revenue Authority of their district. A portion of the population
selected for the purpose of researching the characteristics of the whole population is called a
sample. A sample was a portion of the population selected to achieve the objectives of the study.
In each district there were tax auditors quality controllers and head managers all of whom were
workers in the Jimma zone of the Administration Revenue Authority. A sample size for the study

32
was calculated by using the Yamane (1967) sample size determination formula which is seen in
the following:

Where; n= sample size, N= Total population Size , e = margin of error, Confidence level of 95%,
giving you an alpha level of 0.05(100-95%) =5% or 0.05 .The sample after employing Yamane's
(1967) formula comprises of 142 respondents as the sample size of this study. If the universe
from which a sample is to be drawn does not constitute a homogeneous group stratified sampling
techniques are to be applied to obtain a representative sample. That is to obtain a representative
sample. Researchers normally work to a 95% level of certainty. This means that if a sample were
selected 100 times at least 95 of these samples would be certain to represent the characteristics of
the target population. The confidence level states the precision estimates of the target population
as the percentage that is within a certain range or margin of error.

Table1 3.1. Sample Size of the Study

CATEGORY Target Sample size

Population
Tax payers 199 128
Tax officers 22 14
Total 221 142
For this study select 142 respondent 199 taxpayer’s and 14 tax office employees of Jimma Zone
Revenue Authority (SEPT 2016/2023

3.4 Sources of Data

Basically, there are two sources of data: primary and secondary data. To conduct this research,
both primary and secondary data sources were used to acquire the data.

3.5 Primary of Data

The primary data was obtained by the use of self-administered questionnaires are used. The
primary sources of information are the questionnaire and interviews mainly from respondents
who are currently working in the office of revenue authority in Jimma zone and Self-
administered questionnaires allow individuals to provide responses to specific questions in a
structured manner, while interviews provide an opportunity for more in-depth and qualitative
information gathering. Additionally, depending on the nature of your research, it may be

33
beneficial to complement the primary data with secondary data from other sources to provide a
broader context and support your analysis.

3.5 Secondary Data

The secondary data sources used in your research and Utilizing official reports, internet sources,
and published and unpublished journals is a common approach to gathering secondary data.
Official reports, such as government publications or organizational reports often contain data,
statistics, policies, and findings that can support your study. These reports are typically reliable
and authoritative sources of information. Published and unpublished journals are valuable
sources for academic research. Published journals have undergone a peer-review process,
ensuring the quality and credibility of the information presented. Unpublished journals, such as
conference papers or preprints, may provide preliminary findings or insights that have not yet
undergone formal peer review. When using secondary sources of data, it is essential to properly
cite and reference the original sources to give credit to the authors and maintain academic
integrity..

3.6 Measurement of Variables tax compliance

In this study, the independent variable and dependent variables .when measuring tax compliance
as the dependent variable, researchers often employ various indicators or measures to capture
different aspects of compliance behavior. It is based on pail (2019) with some modifications to
suit our country’s cortex. These tax audit independent variables have six variables: tax
knowledge and education, probability of tax audit, and tax penalties. tax motivation, tax
sanctions, and voluntary taxes thus, to measure the complete representation of independent
variables and dependent variables of tax collection operational performance, the researcher
employed multiple questionnaires from different authors using the five-point linker scale, with a
rate ranging from 1 (strongly agrees), 2 (agrees), 3 (neutral), 4 (disagrees), and 5 (strongly
disagrees).

3.6 Measurement of Independent Variables

In this research, the independent variables tax audit were the probability of tax audit; knowledge
and education, motivation tax, penalties tax; tax sanction and Voluntary tax six components.

34
3.7 Techniques of Data Collection
This study was used both primary and secondary data. Information was obtained from the
revenue authority using questioners to generate primary data, while the secondary data was
obtained from existing literature such as Jimma Revenue Authority reports. The data collected
contains information on all categories of tax motivational, tax volunteer, tax sanction and field
tax audit, probability of being audited, Tax audit related to tax Education, tax and knowledge
motivational and reporting and tax penalty. Questionnaires received from respondent’s schedules
were checked for completeness with repeat calls being made for incomplete questionnaires to
maintain the number of respondents. Descriptive and inferential tests were used in the analysis.
The primary data was gathered primarily from respondents working in the revenue authority
office in Jimma zone using self-administered questionnaires using self-administered closed-end
structured, questionnaires, interview, observation, Surveys and relevant document. To find out
consistent responses from the respondents, the investigator employees field survey research to
collect the data. A questionnaire was appropriate for data collection because they provide
standardized answers, making it easy to compile data (Charles, M.2015).

3.8 Methods of Data Analysis

Data analysis contains the transformation of the observations gathered from the field into a
system of categories, and through quantitative analysis, relevant information to the objectives of
the study was determined and transformed into meaningful information for easy interpretation
and understanding. In processing the collected data, the following techniques were employed:
editing, tabulating, and others. Quantitative data findings are triangulated with qualitative data
findings and secondary data findings. In processing the collected data, the following techniques
were employed: editing and tabulating, among others.

The frequency and percentage distribution were used to determine the demographic
characteristics of the respondents. The study focuses on the following dimensions of independent
variables: tax knowledge and education, probability of being audited, and tax fines and penalties;
tax motivation; tax sanctions; voluntary tax compliance; and the impact on tax payer compliance
and revenue in the branch office, which is a dependent variable that was measured on a five-
point Linker scale. For data analysis, the study used both descriptive and inferential statistics.
Descriptive statistics (mean, standard deviation, and correlation) were used in this study to

35
describe the demographic details of the respondents, as well as the central tendency dispersion
and standard deviations, which were measures of the perceptions of respondents about individual
items for tax audit types, tax compliance, and revenue. The independent and dependent variables
scale items were tested using Pearson correlation to ascertain whether the variables used in this
study depict the relationship between the variables with the degree of association or not, and
multiple regression analysis has the objective of predicting changes in the dependent variable in
response to changes in the independent variables.

3.9 Model Specification and Description of Study Variables

This multiple linear regression analysis allows us to estimate the association between a given
independent variable and the outcome while holding all other variables constant. It also provides
a way of adjusting to account for potentially confounding variables that have been included in
the model. The five main assumptions underlying multiple regression models must be satisfied:
linearity, heteroscedasticity, and multicollinearity. Independence of errors, normality, and
independence of independent variables determine whether these assumptions are satisfied. In
order to find the cause-and-effect relationship between dependent and independent variables, this
study designed multiple regression models so as to measure the level of significant relationship
between the dependent and independent variables. A regression model determines a relationship
between an independent variable and a dependent variable by providing a function. Formulating
a regression analysis helps you predict the effects of the independent variable on the dependent
one. Example: We can say that age and height can be described using a linear regression model.

Where: Y=Tax compliance β0=Constant (value of Y when X1, X2, X3, x4, X5 and X6)

β1, β2, and β3 = Coefficient indicating rate of change of tax compliance as Probability of tax
audit, fines and penalties and tax knowledge and education changes sanction severity and
voluntary taxes
X1 = Tax Motivation
X2 = probability of tax audit
X3 = Tax knowledge and educational
X4= Tax sanction severity
X5= tax Volunteer
X6= Fines and penalty

36
Ɛ = Error term

3.10 Reliability and Validity Analysis

To measure the complete representation of independent variables and dependent variable, the
researcher adopts multiple questionnaires from different authors using the five-point Linker
scales rate ranging from 1= strongly agrees,2=Agree,3=Neutral,4=Disagree,5= strongly disagree.

3.10 Validity
Legitimacy alludes to the conceptual and scientific soundness of inquiry, pondering, or
examination, and the essential reason of all forms of inquiry is to create substantial conclusions.
To deliver substantial, important, and precise conclusions, analysts must endeavor to kill or
minimize the impacts of unessential influences, factors, and clarifications that might degrade the
precision of a study’s extreme findings. Basically, legitimacy is related to investigation technique
since its essential purpose is to extend the precision and convenience of finding by dispensing
with or controlling as numerous bewildering factors as conceivable, which allows for more
noteworthy confidence within the finding of any given thought.

3.11 Reliability Test

Reliability refers to the consistency and dependability of measurement technique and it is
concerned with the consistency or stability of the score obtained from a measure assessment over
time and across settings or conditions on the off chance that the estimation is dependable at that
point there's less chance that the gotten score is due to irregular variables and estimation error.
The Cronbach’s Alpha esteem utilized to test the unwavering quality of the things measuring
each variable. An unwavering quality degree coefficient reflects how well things in a set are
emphatically connected to one another. In like manner the inside consistency strategy was
planned to utilize in this consider to look at the unwavering quality of each variable. The level of
unwavering quality of the instrument demonstrates the consistency of the factors Cronbach’s
Alpha is an index of reliability associated with the variation accounted for the true score of the
underlying construct and it can only be measured for variables which have more than one
measurement question 0.5 is a sufficient value, while 0.7 is a more reasonable value (Kansanshi,
2018).Table 2 Cranach’s alpha internal consistency rule of Thumb measures
Cronbache,s Alpha Internal Consistency

Alpha ≥ 0.9 Excellent reliability (testing)

37
 0.8 ≤ Alpha < 0.9 Good reliability (testing)
0.7 ≤ Alpha < 0.8 Acceptable reliability
0.6 ≤Alpha < 0.7 Questionable reliability(testing)

0.5 ≤Alpha < 0.6 Poor reliability

Alpha< 0.5 Unacceptable reliability

Source: Manerika, Vijaya and Manerikar, Sumeet (SEPT 2016/202

Furthermore, the widely acceptable level of Alpha value in most social science studies is
Hulland, (1999).Consequently the investigator checks the reliability of the items in the Linker-
type questionnaires and gets a good coefficient of Cronbach's alpha of and which is more than
the level value of alpha this shows the presence of acceptable internal consistency and reliability
in the questions

3.12 Ethical Consideration

The research give due consideration to obtain consent from each participant of the study and
strictly conducted on voluntary tax and tax sanction of tax audit basis .The researcher trying to
respect right and privacy of the participants for the study .Furthermore, Participants clearly
informed an information they provide be kept confidential and not be disclosed to anyone.
According to Endgame (2020), there are four ethical issues that need to be addressed in the
process of undertaking a research: That are protection from harm, informed consent, right to
privacy, and honesty with professional colleagues. Therefore, the participants in this study was
selected with full consent and informed to respond for questionnaires with confidence and
understanding the purpose of the thesis; and the researcher was assured that as he will keep the
information confidential and the data will be used for intended purpose only.

3.13 Questionnaires
To acquire pertinent information for this study we developed questionnaire as the main
instrument. A questionnaire was preferred because it is the most appropriate means to involve a
large sample size of the population to gather the necessary information within a given time
frame. The questionnaire consisted of items regarding respondent’s background and their
attitudes towards the impact of tax audit and taxpayer compliance and its problem in their Jimma

38
Zone. Closed-ended questions were used for the very reason that they are easier to categorize and
analyze the responses. To have interpretive data, in some sort of quantitative sense, the
researcher constructed the closed-ended question items in the form of Yes and No with items to
be chosen as their possible reasons for their responses and having five points ranging from
strongly agree to strongly disagree with the suggested values which run through one to five.
Open–ended questions are used to provide an opportunity for respondents to express their
feelings, perceptions problems and intentions related to tax audit practice.

3.10. Interview
The semi-structured interview was held with the Jimma Zone Revenue Authority manager and
processes office of each department and Regional Revenue Authority and used to focus the
respondents on important issues. Interviews were administered to each selected Zone Revenue
Authority manager Zone Revenue Authority process owners and region Revenue Authority
manager who is assumed to have information on tax audit practice and its problem in the
respective zone. It was believed that it helps to get information about the attitudes and beliefs of
sample Populations to supplement the questionnaire. It can also be seen as critical to counter-
check the respondent’s responses to the questionnaire

39
 CHAPTER FOUR
DATA ANALYSIS, REULTS AND DISCUSSIONS

4. Introduction
This chapter presents the results of data analysis and discussion, gives an overview on the
responses that was generated from the study organized in the tax section describing the overall
demographic profile of respondents and descriptive of respondent on the impact of tax audit on
taxpayer compliance. it also includes Pearson`s correlation to explain the association between the
dependent variable and the independent variables the results were presented according to the
research question objectives of the study.

The descriptive statistics utilized in this research were frequency percentage and inferential
analyzed data concerned with the various tests of significance for testing hypotheses normality
auto correlation and Multicolearity in order to determine with what validity data can be said to
indicate some concussion. The data collected from the returned questionnaire were entered into
SPSS (Statistical Package for Social Scientists version 25) for analysis in Windows software.
The data was sorted to group questions according to the applicable constructs under test. Finally
correlation and regression analyses were performed. In this study a multiple regression analysis
was performed using all the discrete dependent and independent variables in the datasets. This
discusses and analyzes the impact of tax audits on taxpayer compliance in the Jimma Zone
Revenue Authority.

Table 2Table 34.1 Response Rate

Normally, a total of 142 survey questionnaires were distributed containing items collected from
142 respondents who are working for the Jimmy Zone Revenue Authority. Questionnaires are
intended to be collected from taxpayers, including taxpayers and 22 tax officers. Out of these
136 questionnaires were properly filled out and returned, which accounts for a response rate of
95%. However, there are still six questionnaires that remain uncollected, representing (4.3%) of
the total distributed questionnaires. Additionally, there were 1–35 questionnaires that were not
returned, which accounts for only 5% of the total distributed questionnaires

40
Table 4 1.Response Rate of respondents

Kinds of respondent Total number Returned questionnaires answers in

of distributed response rate recent
questionnaire
Tax payers 128 122 89.7%
Tax employees 14 14 100%
Total 142 136 95.%

Source: Survey questionnaires using SPSS SEPT 2016/2023

As visible from above the answer free of the replies suggests that all of the questionnaires form
taxpayers questionnaires out of (89.7%) distributed questionnaire from the taxpayers are accrued
Therefore the tax audit was adequate and capable of addressing the objectives of the research. It
is a tax audit from the concerned representative tax audit office and a reliable tax audit office and
as a result it was possible to proceed to data analysis and interpretation.

4.2 Demographic Information

Statistics data appears to be the characteristics of the components within the test estimate: As
such the researcher looked to set up the common data of the respondents, which shapes the
premise beneath which the elucidations are made. Demographic factor one analyzed the gender
of the respondents. This information was necessary to enable the researcher to obtain information
on whether the respondents were either male or female. Accordingly Frequency 93(72.3%)
Percentage of the respondents were male whereas 43(27.7%) of them were female. Demographic
factor two shows the age groups of respondents 48(35.3%) of the respondents were below 30
years of age whereas 45(33 %) of them were between 31 to 40 years of age. This result illustrates
that most of the tax auditors in this study area were generally young (below 30) years.
Table 4.1 Demographic Characteristics of Tax Auditor
Variables Category Frequency Percentage
gender of Male 93 72.3%
respondent Female 43 27.7%
Total 136 100%
Respondent of Less than 30 years 48 35.3%
age 31 to 40 years 45 33.%

41
 41 to 50 years 26 19.2%
Above 50 years 17 12.5%
Total 136 100%
Source: SPSS Output from Survey of Demographic Characteristics of Tax Auditors

4.3 Socioeconomic status of respondents

Socioeconomic status of respondent’s educational levels field studies, work experience and
current work occupation of the assess evaluators in common are the foremost vital factors that
can influence the execution of charge review as well as assess organization framework. For the
most part the respondent socioeconomic status is displayed.

Table 4.2 Socioeconomic status of Respondents

S.N Items Category Frequency Percentage
1 Respondent academic Certificate 18 14%
qualification Diploma 34 25%
BA/BSc 48 35%
MA/MSc 36 26.4%
2 Respondent Field of Accounting &finance 36 25.5%
study Economics 25 14.8%
Management 50 38.7%
Other places specify 25 21.10%
3 Respondent Work Less than 2 years 24 17%
experience 2-4 years 37 26%
4-6 years 30 21%
Above 10 years 45 27%
4 Respondent Current Tax auditor 38 27.9%
job occupation Tax investigator 35 26.%
Tax audit coordinator 24 17.7%
Tax assessor 25 18.3,%
Tax audit director 14 10.3%

Source: SPSS Output from Survey Socioeconomic status of Respondents, (SEPT2016/2023

42
As the above table 4.2 demonstrates about educational background 18 (14%) of the respondents
were certificate level 34 (25%) of the respondents were diploma 48 (35% of the respondents)
were degree-level, and 36 (24.5%) of the respondents held master's degrees. This implies that
around 36 (25.4%) of the respondents has a degree or higher qualification. This educated skill
has the most power to determine the socio-economic status of society, which enables the
respondents to have an idea of the tax audit. With regard to field of study, the majority of the
respondents specialized in accounting and finance, which accounts for 50 (38.7%) of the total
respondents.

The remaining 38.7% and 14.8% of the respondents specialized in business management and
economics, respectively. Moreover, the majority of the respondents studied fields related to
business, which enabled them to understand the implementation of taxes and related issues. As
indicated in Table 4.2- 24 (17%) of the responding tax auditors have a service year of less than 2
years, 37 (26% of the respondents) have service years of 2 to 4 years, and 30 (21% of the
respondents) have service years of 4 to 6 years. 45 (27%) of the respondents have service years
above 10 years. This shows that more than 38 (27.9% of the respondents of the Jimma Zone
Revenue Authority’s tax auditors have more than 2 years of work experience as tax auditors.
With regard to the current job occupation, 35 (26. %) of the respondents were tax auditors. 24
(17.7%) of the respondents were tax investigators and tax audit coordinators. 25 (18.3%) of the
respondents were tax assessors, and 14 (10.3%) of the respondents have been doing.

4.4 Probability of Tax Audit

To analyze the independent variable, which is the probability of a tax audit, the research has
formulated four questions. We monitor how people view taxpayer businesses, have a mean and
standardize division, and strengthen legal enforcement and the probability of a tax audit before
implementing the regarded as the very high score mean (M = 3.448); STD, followed by tax audit
improves the level taxpayers compliance, which is very high; this means that the role of authority
is to respondent experience of Provision of quality service’ ensure that the taxpayers pay tax. In
that regard, the calculated statistical significance value is supposed to escalate the probability of
significance. Because of the strongly agreeing 18 (13.2%),The Linker scaled value of that
specific variable had an agreeing 40 (29.4%), which is higher than the reference point with 21
(15.4%), neutral 19(14%), disagree, and 38(27.9%) strongly disagreeing, and at the all-mean (M

43
3.448) ; (1.736), was STD ,which is very high, means that the role of authority is to keep an eye
=

on how taxpayers pay this tax. Provide an overview of the importance of tax enforcement and its
role in revenue collection and compliance.

The average Linker-scaled value of that specific variable is the mean value, which is very high
and has a high positive correlation. In that regard, the calculated statistical significance value is
supposed to not escalate the probability of significance. This implies providing necessary
information to tax payers regarding the provision of services and the utilization of tax revenues.
Strengthening the legal enforcement potential of tax audits the analytical result concluded that
whether we educate the tax payers and conduct consultation sessions, we have enough evidence
that the tax auditors do not undertake continuous education of the tax payers and conduct
consultation sessions

The agree 46(33.8%) Liker scaled value of that specific variable was disagree 40 (29.5%), it is
higher than the reference point with neutral 29(21.3%), disagree 17(12.5%), and 4 (2.9) strongly
agree, had a very high mean (M = 3.742); STD (.936) the, this is very high means that the role of
authority is to keep an eye on how taxpayers pay this tax. The researcher also wants to check
whether reducing tax rates and making the collection procedures simple and transparent are
strongly agreed upon (29.4%). As a result of the Sinkers scaled value of that specific variable,
which means the high agree 25(18.4%), neutral 32(23.5%), and disagree 21 (15.4%), followed
by strangely disagree 18(13.2%), and the audit of the fact mean of (M=2.747) ; STD deviation of
(1.2627) high positive correlation, which is higher than the mean, this means that taxpayers are
still cheating taxes; they report less than that have to report taxpayers. in that regard

The statistical significance value is supposed to not escalate the probability of insignificance,
declining the stated result of probability of tax audit the taxpayers and conducting consultation
sessions provide an overview of the importance of tax enforcement and its role in revenue
collection and compliance and As a result of the Sinkers scaled value of that specific variable
Strongly agree20 (14.5%), Agree 22(15, 9%), Disagree, 27(19.6%); Neutral; 29 (22.4%) strongly
disagree;38(27.6%). the audit of the fact had of high mean of (M=3.3911);STD of(1.911.) which
is high, this means that taxpayers are still cheating taxes; they report less than that have to report
taxpayers in that regard reducing tax rates and making the collection procedures simple and
transparent

44
Table4. 3 Response probability of tax audit
No Response probability of tax audit N Mean Std. Deviation

1 Provide an overview of the importance of tax 136 3.448 1.736)

enforcement and its role in revenue collection and
compliance.
2 Improving relationship with the public 136 3.742 1,7342
3 Educating the taxpayers and conducting 136 2.747 1.2627
consultation sessions
4 Reducing tax rates & making the collection 136 3.3911 1.911.
procedures simple and transparent
Grand mean probability of tax audit 136 3.448 1.736
Grand mean probability of tax audit(N=136.mean, (M=3.448, and STD (1.736)

4.5 Tax Fines and Penalties

It is important to note that the specific tax penalties and their severity can vary widely depending
on the jurisdiction. Taxpayers should consult the tax laws and regulations applicable to their
specific situation and seek professional advice to understand the potential penalties they may
face in the event of non-compliance identified during a tax audit.

Findings on tax fines and penalties from tax audits reveal that the prospect of tough penalties
deters people from evading taxes, which is regarded as a high score value. Because the agreed-
upon 38 (27.8%) Linker scaled value of that specific variable was disagreed (6749.3%), it is
higher than the reference point with neutral. 26 (19%), disagree (17.5%), and 12 (8.8%) strongly
agree of this mean (M = 4.19);STD was (0.972) followed by tax audit improves the level
taxpayers compliance, which is this: among respondent taxpayers who possess an awareness of
penalties for non-compliance are more compliant than those who do not possess such awareness,
is regarded as the very highest score value. The mean (M = 4.19) ; STD; (0.972), which is the
very high value, means that the role of authority is to keep how taxpayers pay this tax positive
the prospect of tough penalties would deter people from evading tax.

Overall the tax penalties of tax audit -related factors have high effects on taxpayer compliance
because the majority of the respondent’s responses agree upon 34 (25%). The Linker scaled
value of that specific variable was disagree 74 (54.4%), which is higher than the reference point

45
of neutral 13 (1.5%), disagree 14 (10.3%), and strongly agree 37(27%).The last question asked if
the government collects a lot of money from taxpayers had a very high mean of (M = 4.22); SDT
of (1.038) this indicates that a percentage of the money used by the government comes from tax
audits on taxpayer compliance. Taxpayers who possess an awareness of penalties for
noncompliance are more compliant than those who do not possess such awareness.

In addition, the respondents agreed with 36 (26.5%), the liker scaled value of that specific
variable was disagree 26 (19.2%) the reference point of neutral 15 (11%), disagree 15 (11%), and
strongly agree upon 36 (26.4%) The before audit conducted had which is had very high mean of
(M = 4.022) ;( 1,196); STD. that the role of audit is to keep an eye on how taxpayers pays this
taxes. This means that the role of authority is to keep an eye on how taxpayers pay this tax. They
have investigated the relationship between penalties, legal enforcement, and taxpayers'
compliance with their tax obligations. That the penalty and field audit contribute to taxpayer
compliance among large tax payers in JZRA.

Table 4. 4. Responses on Fines and Penalties

Responses on Fines and Penalties of tax audit N Mean Std. Deviation
The prospect of tough penalties would deter people from 136 4.19 0.972)
evading tax
Tax payers who possess an awareness of penalties for 136 4.22 .1.038
noncompliance are more compliant than those who do not
possess such awareness
The have investigated the relationship between 136 4.022 1.196
penalties/legal enforcement and taxpayers' compliance
with their tax obligations.
Grand mean Fines and Penalties of tax audit 136 4.19 0.972
Source: SPSS Output from survey Responses of Penalties (SEPT 2016/2023)

4.6 Tax Knowledge and Education

Tax knowledge refers to understanding the principles, rules, and regulations related to taxation. It
involves having knowledge of tax laws, tax codes, tax planning strategies, and the various types
of taxes that individuals, businesses, and organizations are required to pay and Tax audit
education refers to the knowledge and skills necessary to perform tax audits effectively. A tax

46
audit is an examination of an individual's or organizations financial records to ensure that they
have complied with the tax laws and accurately reported their income, deductions, and credits
Findings on tax knowledge and education in tax audits reveal that teaching tax evaders to deal
effectively with their taxes would reduce future offenses. Is regarded as agreeing with the
responses 52 (38.2%) say they agree, followed by strongly agreeing. 28 (20.6%) who say they
strongly agree are natural; 21 (14.7%) disagree; 18 (13.2%) disagree; and the last 17 (12.5%)
strongly agree. Also, the mean (M = 3.41); STD (1.29) which confirms that they agree with the
had the very highest score value mean which is a very high positive correlation, means that the
role of authority is to keep the taxpayers paying tax and standardize division; teaching tax
evaders to deal effectively with their taxes would reduce future offenses.
Overall, the tax Education -related factors have high effects on taxpayer compliance because the
majority of the respondents responses (N = 136 in the table) show tax knowledge and education
as the determining factors. 49 (36%) say they agree, followed by 33 (24%), who say they
strongly agree; 22 (16%) say they are natural; 18 (13%); and the last 14 (10%) who strongly
disagree. Also, the mean (M = 3.51; STD was 1.297) this means that the very high score means
that the role of authority is to keep track of how taxpayers pay this tax and tax evasion could be
best handled though informing and encouraging tax payers to comply voluntarily

Furthermore, this means that among respondents, tax audits performed in tax administrations are
regarded as having very high value. Tax audits are performed by tax administrations to educate
taxpayers. The respondents agreed with the high mean of (M = 2.70) and STD of (1.201), the
awareness of tax audit makes the tax payers to render a satisfactory return. According to the
findings, tax evasion could be best handled by informing and encouraging taxpayers to comply
voluntarily. The respondents agreed, followed by agreeing 48 (35.3%), and those who say they
strongly disagree 31 (8%) say they are natural, 22 (16.2%), and the last 20 (14.7%) strongly
agree. 15(11%) Also, the mean (M = 3.53) and STD (1.277) of that tax knowledge and education
and field audit contribute to the payment of interests among large tax payers in revenue authority
administration in zone before deadlines. Tax audit performed in tax administrations is to educate
taxpayers. In addition, the respondents agreed with a mean of mean (M = 3.53) ; STD (1.277),
which means that the very high level means that the role of authority is to keep the taxpayers
paying this tax and tax audit performed in tax administrations is to educate taxpayers.

Table 4. 5: Responses on Tax Knowledge and Education

47
 The measures of Tax Knowledge and Education N Mean Std.Deviation
Teaching tax evaders to deal effectively with their taxes 136 3.41 1.29
would reduce future offences
Tax evasion could be best handled though informing & 136 3.51 1.297
encouraging tax payers to comply voluntarily
The awareness of tax audit makes the tax payers to render a 136 2.70 1.201
satisfactory return
Tax audit performed in tax administrations is to educate 136 3.53 1.277
taxpayers.
Source: SPSS Output from survey Responses on tax knowledge and education (SEPT
2016/2023)

4.7 Tax Audit

Tax audits are conducted by tax authorities to review and examine taxpayers' financial records,
tax returns, and other relevant documents to ensure compliance with tax laws and regulations.
Several factors contribute to the selection and conduct of tax audits.

The table above shows tax audit that the respondent had (N = 136), and few people report all of
their income to revenue as government strategies require had the strongly agree: 37 (27.5%), 64
(47.1%), who say they strongly agree; 15 (11%) say they are natural; and the last 36 (26%), who
strongly disagree. Also, the mean (M = 4.121) and STD (1.195) confirm that this tax had a high
mean (4.121); (1.195) STD, followed by tax audit, improves the level of taxpayer compliance,
which means that among (N = 136) respondents ,experiences and provisional quality services sub
division staff the majority agree that taxpayers are clear in their tax returns and some taxpayers
are still cheating taxes; they report less than what they have to report, and few people report all
of their income to revenue as government strategies require. This means that some taxpayers are
still cheating on taxes because they report less than what they have to report, which is more than
what they have to report tax audit

Tax Audit don't have to pay penalty rates for taxpayer behavior charges because they have the
determining factors, Strongly agree: 39 (28.7%) say they agree, followed by 45 (33.1%) who say
they strongly agree. 18 (11%) say they are natural; 19 (14%); and the last 15 (11%), who
strongly disagree, also had a high mean (M = 3.57) and STD (1.315) tax attitudes, which is very

48
high. Taxpayers don't pay penalty rate charges because they have attitudes towards tax and this
means that among the respondents, taxpayers pay taxes on time because of their good attitude
toward paying on time. Tax fraud reduces the amount of personal tax to be paid, the respondent
of fact, Strongly Agree 63 (46.3%) say they, followed by Agree 37 (27.2%) who say they,
Disagree 14 (110.3%) say they are natural, 17 (12.5%), and strongly Disagree 36 (26.4%). which
means had very high means also, the mean (M = 4.071); STD (1.072), followed by the agree had
very high means that the more taxpayers have schemes, the more the role of authority is to keep
an eye on how taxpayers pay this tax and how the cash will be paid, which affects the economy
of a country and Tax fraud reduces the amount of personal tax to be paid by taxpayers through
the behavior of tax audits.

Table 4. 9: Tax Audit

Tax Audit N Mean Std. Deviation
Few people report all of their income to Revenue as
136 4.121 1.195
government strategies requires
Taxpayers don‘t to pay penalty rate charges because they
136 3.571 1.315
have Attitudes towards taxes.
Tax fraud reduces the amount of personal tax to be paid 136 4.071 1.072.
Grand mean tax audit
136 4.121 1.195

Statically N=136.MEN, (M=4.121, Standardized Deviation=1.195

Source: SPSS Output from survey of Taxpayer behavior respondents (SEPT 2016/2023)

4.8 Tax volunteer factor

From the findings, the tax volunteer for the tax audit agreed with them. The observations, the
first was asked if tax audits help achieve tax collection targets; it had a high mean, which is high,
while the respondent was first of all, the majority of the respondents responses say they agree,
followed by 48 (35.3%) who say they strongly agree. 24 (17.6%) say they are natural, followed
by 17 (12.5%) and the last 22 (16.2%), who strongly disagree. 25(18.4%). Also, the mean (M =
3.39) and STD (1.511) confirm that they agree with a high mean of (M = 3.39). The tax
volunteer and reporting about the monitor how people view taxpayer businesses, which had a
very high mean of (M = 3.39);of by the factors we monitor how people view taxpayer

49
businesses, and a very high this means that the role of authority is to keep an eye on how
taxpayers pay this tax and the tax payer's compliance.

Tax volunteers of tax audit taxpayers show volunteer tax in formation, which means that the role
of auditors is to keep an eye on how taxpayers pay their taxes and Tax volunteer reporting
taxpayers showed the proper information, indicating that the variations in the questions asked on
tax audits help taxpayers keep accurate financial records for better future declarations. Most of
the respondents responses say they agree, followed by 24 (17.6%) who say they strongly agree.
28 (20.6%) say they are natural, 29 (21.3%), and the last 38 (27.9%) strongly disagree. 20
(14.7%) of the following had a high mean of (M = 3.13) and STD of (1.475), which is very high
this means that the role of authority is to keep taxpayers from paying this tax.

Tax volunteer reporting Taxpayers showed the proper information had a highly significant mean
of (M = 3.13) which variations the question asked on the tax audit helps taxpayers keep accurate
financial records for better future declaration and most of the respondents responses say they
agree, followed by 24 (17.6%) who say they strongly agree. 28 (20.6%) are natural, 29 (21.3%)
are not, and the last 28 (20.6%) strongly disagree. 20 (14.7%) of the following had a high mean
of (M = 3.02); (1.734) STD, which means that some taxpayers are still cheating taxes and that
taxpayers have legal documents to use in reporting taxes. Tax payers have legal documents to
use in reporting tax, which is why the mean (M = 3.02) which means taxpayers pay tax legally
because of legal documents they have like electronic billing machine numbers and other
documents from the tax audit and taxpayers have legal documents to use in reporting taxes

Table 10: Tax Volunteer of tax audit

Tax volunteer tax reporting N Mean STD
We monitor how people view taxpayers business 136 3.39 1.511
Taxpayer‘s show volunteer tax the proper in formation 136 3.13 1.475
Tax payers has legal documents to use in reporting tax 136 3.02 1.734
Grand mean of Volunteer of tax audit 136 3.39 1.511
Source: SPSS Output from survey of Volunteer Tax reporting (SEPT2016/2023)

4.8 Tax Sanction Factor

To understand the specific factors or penalties associated with tax sanctions in a particular
jurisdiction, it is advisable to consult the tax laws, regulations, and guidelines of that jurisdiction

50
or seek assistance from a tax professional that is knowledgeable about the specific jurisdiction in
question. They will be able to provide you with accurate and up-to-date information on tax
sanctions and the factors that may influence them.
According to the findings, the respondents agreed with it. The majority of the respondents
responses, 38 (27.9%), say they agree, followed by 31 (22.8%), who say they strongly agree. 20
(14.7%) say they are natural, 23 (16.7%), and the last 24 (17.6%) strongly disagree. Also, the
mean (M = 3.059) and STD of 1.756 confirm that they agree with a high mean of 3.0597 of
deviation that the tax sanctions and field audits contribute to the payment of interest among large
tax payers in the revenue authority administration of Jimma Zone. This means that the role of
authority is to keep the taxpayers paying this tax, and field audits contributed to the payment of
taxes among large tax payers in Jimma Zone revenue before deadlines.

Furthermore, the respondents agreed that the majority of their responses say they agree, followed
by 16 (11.8%), who say they strongly agree, 20 (14.7%), who say they are natural, 39 (28.7.7%),
and the last 22 (17.6%), who strongly disagree. Also, the mean (M = 2.911, STD = 1.677)
confirms that they agree that the high mean (M = 2.911) indicates a high positive negative
correlation between the tax audit and tax sanctions, which is higher than the mean And This
means that taxpayers are still cheating taxes; they report less than they have to report, and field
audits contribute to the payment of penalties among large tax payers in the study area before
deadlines and tax sanction severity and field audits contribute to the payment of penalties before
deadlines.

The last question shows in Table 4.7 that the factors of tax audit and tax sanction influenced their
responses. 30 (22.1%) say they agree, followed by 46 (33.8%) who say they strongly agree, 23
(16.2%), who say they are natural, 22 (16.19.9%), and the last 15 (11%), who strongly disagree.
A high mean of 3.40 and 1.295 indicated that taxpayers were comfortable during tax auditing
action, may be thinking that auditors were coming to discover their frauds and very high positive
correlation: the 136 respondents agreed that the tax audit, tax sanction severity, and field audits
contributed to the payment of taxes among large tax payers in Jimma Zone before deadlines.
During the audit process, the revenue authority determines if any of the inaccurate tax returns are
subject to additional interest, penalties for fraud, tax sanction severity, and field audits that
contribute to the payment of penalties before deadlines.

51
Table 4. 11: Tax Audit of tax Sanction Factor
Tax audit tax sanction factor N Mean STD.
Tax sanction severity and field audit contribute to tax
136 3.059 1.756
compliance before deadlines
a tax sanction severity and field distribute to the payment of
136 2.911 1.677
taxes before deadlines
Tax sanction severity and field audit contribute to the payment
136 3.40 1.295
of penalties before deadlines
Grand mean of tax sanction of tax audit 136 3.059 1.756
Source: SPSS Output, A Tax Audit tax Sanction (SEPT 2016/2023)

4.9 Tax Motivational factor

Tax Motivational of Tax audits are conducted to identify instances of non-compliance, such as
underreporting of income or improper deductions, which can result in taxpayers owing additional
taxes, penalties, and interest. By detecting and correcting these errors, tax authorities aim to
increase tax revenue and ensure that taxpayers are paying their fair share.

Table 4.6 shows that tax motivation is a significant factor in tax audits, and a significant number
of tax auditors disagree that strengthening legal enforcement tax motivational by themselves
ensure voluntary tax compliance behavior. These people have the belief that encouraging the
responsible citizen approach has to be the axis of the motivational factor. Regarding the other
measures, almost all of the respondents agreed with the possible measures proposed in the study.
it is evident from the table that the majority of the respondents felt that improving relationships
with the public and making the collection procedures simple and transparent could motivate
them to pay their fair share of taxes voluntarily. Similarly,

The Table 4.6 above showed that all their income-to-revenue strategies as government strategies
had a high strongly agree score; below 16 (11.8%) is considered low, and the strongly agree
score of 51 (37.5%) follows neutral. 22 (16.2%) to be considered 18 (13.2%) disagree, and the
strongly disagree score of 29 (21.3%) above 31 (22%) is considered the regarded as the very
high score mean (M =3.433);STD (1.858),followed by tax audit improves the level taxpayers
compliance and which is a very high means that the role of authority is to ensure that the

52
taxpayers pay this tax. taxpayers improved relationships with the tax and public relations
taxpayers based on this explanation of tax duration, the research has been summarized as the
result of the mean scores in the preceding sections

Findings on tax motivation and tax compliance reveal that if the tax authority has limited
capability to investigate, all the tax compliance-related factors have high effects on the taxpayer's
compliance because the second score of the respondents responses is agree. 49 (45%), followed
by strongly disagree 35 (24.6%), 33 (19.7%), natural, 11 (7.7%), disagree, and the last 18 (13%)
say strongly agree. also, the mean( M = 3.096; STD (1.723), which is educating the taxpayers
and conducting consultation sessions during the tax audit, improves relationships with the public.
all the tax compliance-related factors have high effects on the taxpayer's compliance because the
second score of the respondent’s responses is agree. 45 (33.1%), followed by strongly disagree
28 (20.6%), natural, 29(21.3%), disagree 21 (15.4%), and the last 13 (9.6%), say they strongly
agree. the regarded as the very high score mean (M= 3.397) ; STD (1.957) followed by tax audit
improves the level taxpayers compliance confirm agreeing on reducing tax rates and making the
collection procedures simple and transparent.

Table 12 Responses on Motivational of tax audit

Possible measurement No Mean
STD
Improving relationship with the public 136 3.433
1.858
Educating the taxpayers and conducting consultation 136 3.096
1.723
Reducing tax rates and making the collection 136 3.397
1.957
procedures simple and transpire

Source: SPSS Output from survey of respondents tax motivational and rule of regulation tax
audit (SEP 2016/2023)

4.10 Descriptive Statistical Analysis

Descriptive analysis is the first step in this study. It helped to describe relevant aspects of
Phenomena of tax revenue and provide detailed information about each relevant variable Views
software has been used for analysis of the different variables in this study. Descriptive Statistics
shows the mean and standard deviation of the different variables used in the study. It also
presents the minimum and maximum values of the variables, which help in getting a picture

53
about the maximum and minimum values of the variables .A total of 136 copies of
questionnaires were sent to tax auditor respondents. From the auditor respondents, 136 usable
questionnaires were obtained. (95%) present respondent Descriptive measures of responses are
presented in Table 4.12.

Descriptive statistical Analysis

N MIN MAX MEAN STD

Probability of tax audit 136 2 5 2.50 1.316
Tax Motivation 136 2 5 3.88 1.448

Tax volunteer 136 2 5 2.93 1.156

Tax sanction severity 136 2 5 3.30 1.131

Tax knowledge and 136 2 5 3.26 1.049

education
Fines and Penalties 136 2 5 3.04 1.204

Source: SPSS output from tax auditor staff respondent SEPT 2023

4.11 Tax Compliance

The descriptive statistics were discovered to examine the validity of observations to analyze the
dependent variable, which is tax compliance. This helps to know the respondents (N=136)
understanding of the supply chain management practice and its effect on the operational
performance of the Jimma Zone Revenue Authority. According to the mean score, below is
considered high, the mean score from up to is considered very high, and the mean score above is
considered high and Based on this explanation, the research has been summarized as the result of
the mean scores in the preceding sections. Findings on tax compliance reveal that the tax
authority has limited capability to investigate all income reported to them, so people have an
opportunity to not report their exact income, which is regarded as the highest score value mean
and standard deviation. Deviation, followed by the amount of taxable income and profit, is
declared by the taxpayer, so it is not wrong to omit or understate the taxable income and the
profits declared are very high, both mean and standard and The last question asked if the
government collects a lot of money from taxpayers had a mean that was high and a standard

54
deviation that indicated that the majority of money used by the government comes from t tax
compliance.
Table 13: Responses on Tax Compliance
Responses on Tax Compliance N Mean STD
It is not wrong to omit or understate the taxable income and 136 3.47 1.279
profits declared by the taxpayer
One is paid in cash for a job and then does not report it in 136 3.43 1.286
the tax return
The limited investigative capability of tax authorities creates 136 3.51 1.277
opportunities for individuals to under report their income
Grand mean of Tax Compliance 136 3.49 1.279
Source: SPSS Output from survey of Responses on Tax Compliance (SEPT 2016/2023)

Overall, the tax compliance-related factors have high effects on taxpayer compliance because the
majority of the respondents(N=136) say they agree, followed by 31 (23%), who say they strongly
agree. 22 (16%) say they are natural, 18 (13%), and the last 15 (11%), who strongly disagree,
Also, the regarded as the very high score mean (M = 3.47) ; STD (1.279) followed by tax audit
improves the level taxpayers compliance confirm that they agree that the It is not wrong to omit
or understate the taxable income and profits declared by the taxpayer.

Findings on tax compliance reveal that if the tax authority has limited capability to investigate,
all the tax compliance-related factors have high effects on the taxpayer's compliance because the
second score of the respondents responses is 51 (37%), followed by 29 (21%), 22 (16%), natural,
18 (13%), disagree, and the last 16 (12%) say strongly disagree. Also, the mean (M = 3.4); STD
(1.286) confirm respondent experiences that the limited investigative capability of tax authorities
and one is paid in cash for a job and then does not report it in the tax return. It is evident from the
table that the majority of the respondents felt that improving relationships with the public was
important. Relationship tax payer all the tax compliance-related factors have high effects on the
taxpayer's compliance because of the respondents responses 49 (36%), followed by 33 (23%),
say they strongly agree, 22 (16%) say they are natural, 18 (13% say they disagree), and the last
14 (10%) say they strongly disagree. The regarded as the very high score the mean, (M = (3.51);
STD = (1.277) confirms that they agree very strongly and this means that the role of authority is

55
 to ensure that the way taxpayers pay this tax understates the taxable income and profits declared
by the taxpayer and the limited investigative capability of tax authorities creates opportunities for
individuals to underreport their income

4.12 Correlation Statistical Analysis

Correlation statistics is a method of assessing the relationship between variables and factors. To
be precise, it measures the extent of association between the ordering of two random variables.
Thus, the study analyzed the relationships that are inherent among the independent and
dependent variables as well as among the independent variables factors. The results regarding
this were summarized and presented Correlation Analysis .Table 14 Correlations coefficient
variable tax compline, tax motivation understanding of taxpayer’s compliance, tax audits and
penalties
Correlations coefficient

Correlations coefficient tax Motivati Probabil Knowle Tax Volunt Fines

compli onal of ity of dge Sensati eer of penalty
ne tax tax educati on tax
tax Pearson 1. audit on severit audit
compliance Correlation
Coefficient
Sig. (2tailed) .004
N 136
Tax Pearson .753** 1.
Motivation Correlation
Coefficient
Sig. (2tailed) .000 .
N 136 136
Probability Pearson .724** .543** 1.
of tax audit Correlation
Coefficient
Sig. (2tailed) .001 .005 .
N 136 136 136

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Knowledge Pearson .728** .422** .641** 1.
and Correlation
educational Coefficient
Sig. (2tailed) .003 .000 .004 .
N 136 136 136 136
Tax Pearson .819** .7230** .531** .689** 1.
Sensation Correlation
severity Coefficient
Sig. (2tailed) .001 .001 .001 .000 .
N 136 136 136 136 136
Tax Pearson .768** .500** .628** .585** .600** 1. .
Volunteer Correlation
Coefficient
Sig. (2tailed) .001 .002 .003 .008 .001 .000
N 136 136 136 136 136 136
Fines and Pearson .821** .718** .582** .650** .597* .307** 1.
penalty Correlation
Coefficient
Sig. (2tailed) .030 .004 .001 .003 .002 .000

N 136 136 136 136 136 136 136

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).
The correlation indicates the relationship between two variables, and it ranges from 1 to 1, where
1 indicates a positive correlation and a -1 spearman correlation results in Table 14 show that tax
motivation had a significantly positive relationship, and the correlation coefficient with tax
compliance (R2 =.753, p-<.000) indicates lack of relationship between the two variables.
According to the above SPSS output, the Pearson correlation coefficient (R 2 =.753, p < 0.000) is
an indication that there is a positive relationship between tax motivation and taxpayer
compliance. There is a positive impact of tax audits on tax payer compliance in Jimma Zone.
These findings are in line with Klmani's (2019) finding that tax audits, including tax motivation

57
and field audits, have a significant effect on tax payer compliance. The sample size of 136 and
Pearson correlation coefficient of R 2 =.753 (56.7%) of the change by (.753) tax motivation audit
on tax compliance But 43.3% of the change was accounted for by other factors.

Thus, the probability of a tax audit being the second component to have a significant positive
relationship to tax compliance remains; tax compliance costs had a 52.4% positive relationship
with tax compliance at (R2 =.724) p<.001 significant Spearman correlations result in the
probability that tax audits were positively and significantly correlated to tax compliance, as
confirmed by the probability of tax audits having a positive and significant effect on tax
compliance.

The p-value of the Spearman correlations results shows that the probability of tax audits has a
significant positively relationship with tax compliance (R 2 = (.724) p<.000). The correlation
coefficient of R2 = (.728) probability of tax audits tax to on tax compliance (R2 =.728 (.524) =
52.4% of the change by tax knowledge and education on tax compliance). Therefore, tax
compliance costs had a 53% positive relationship with tax compliance. But 47.5% of the change
was accounted for by other factors.

Within Pearson Correlation coefficient: tax knowledge and education have a significant positive
correlated relationship on taxpayer compliance, and correlation coefficient: R 2 = (.728) tax
sensation severity and tax on tax compliance (R2 = .728 (.529) = (.529%) of the change by tax
sensation severity and on tax compliance. The relationship between tax knowledge and
educational and tax compliance was R 2=.728 (52.9% p<.003) positive and weak relationship
p<0.05 positive relationship with tax compliance. But 47% of the change was accounted for by
other factors, and tax compliance costs had a positive (52.9%) relationship with tax compliance.

This result confirms that tax Knowledge and educational has a positive impact on tax compliance
behavior, especially in the case of tax sensation severity of tax audit. This result verifies the
study's findings and provides some preliminary evidence that imposing tax sensitivity and
providing for tax compliance among real estate investors will improve tax compliance.

Within tax volunteers on Pearson, the correlation coefficient depicts significantly positive
relationship to tax compliance correlated tax volunteers on tax compliance (R 2 =.768, p<.003).
And correlation coefficient of R 2 =.768 Volunteer of tax audit tax motivation and tax compliance
(R2 =.768(59%) of the change by (.768) Volunteer of tax audit tax compliance, but 41% of the

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change is accounted for by other factors. This tax compliance cost had a 59% positive
relationship with tax compliance. The results indicate that a high tax rate can potentially increase
taxpayer compliance, as higher-income earners will be reluctant to comply because they will
have to pay a higher income tax and are taxed by preparing a book of accounts rather than by the
estimated tax system.

According to the above SPSS output finding Pearson correlation coefficient (R 2 =.821, p<.030),
there was significantly positive association between penalties and tax payer compliance. These
findings are in line with Klmani's (2019) finding that tax audits, including penalties and the
probability of tax audits, have a significant effect on taxpayer compliance. The Pearson penalty
and tax compliance correlation coefficient (R 2 =.821 (.674) or (67.4%) of the change by tax
penalty on tax compliance But 32.6% of the change was accounted for by other factors, and these
tax compliance costs had a (67.4%) positive relationship with tax compliance. The Pearson
correlation coefficient (R2 = 0.821, p<.030) at the 95% confidence interval level result table 4.8
showed that fines and penalties for being audited were positively correlated with tax compliance
in the Jimma Zone Revenue Authority, and there was a positive impact of tax audits on taxpayer
compliance in Jimma Zone. This finding confirms Beyene, Ganfure, and Endale's (2020) finding
that the tax motivation of being audited has a significant effect on taxpayer compliance.

4.13 Results of Regression Analysis

4.13.1 Results of Regression Analysis and Discussions

The study employed multiple linear regression analyses to test the influence of the predictor.
Variables on the dependent variable and table 15 show the results for the regression model. The
results indicate that the regression model best fits the explanation of tax compliance. A multiple
linear regression model was used to predict taxpayer compliance in the study. The beta
Standardized coefficients present the contribution, or positive or negative relationship, of each
variable to model the influence of the independent variable on the dependent variables. The
prediction was carried out based on the effects of six independent factors: probability of tax
audit, tax knowledge and education, tax motivation, sanction severity, and voluntary tax audit.
Tax fines and penalties from the regression equation, it was revealed that, holding for each
independent variable the tax motivation of a tax audit, the taxpayer goes up by a factor of β1

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=.414, p-value =.008, which is greater than or less than α = 0.05, which implies the null
hypothesis stating that there is a significant relationship between the tax motivation of a tax audit
and tax compliance. A standardized division of the tax motivation of a tax audit would lead to an
increase in tax compliance.

The probability of a tax audit has a significant effect on taxpayers' compliance. A higher
probability of a tax audit generally leads to increased tax compliance as taxpayers strive to avoid
detection and potential consequences. Tax authorities often use audits strategically to promote
compliance and deter tax evasion.

Research findings are in agreement with the hypothesis since the probability of a tax audit has a
coefficient of (β2 = 0.470, p-value = 0.002). Audit probability has a positive effect on tax
compliance; thus, the higher the potential audit probability, the greater the discouragement for
potential tax evasion. Therefore, the hypothesis is that audit probability has a significant impact
on the tax compliance behavior of tax payers. The probability of an audit plays a significant role
in reporting behavior, as taxpayers will declare everything if they perceive that they will be
audited in that particular year. Standardized division is statistically significant in explaining tax
compliance, and holding variables constant is a statistically significant predictor.

Tax knowledge and education can have a significant relationship with taxpayer compliance.
Having a good understanding of tax laws, regulations, and filing requirements can positively
impact tax compliance. When taxpayers are knowledgeable about their tax obligations, they are
more likely to accurately report their income, claim eligible deductions and credits, and fulfill
their tax responsibilities.

Research findings are in agreement with the hypothesis since tax knowledge and education have
a coefficient estimate (β3 = 0.480, p-value = 0.025). A high level of tax knowledge and
education contributes immensely to tax compliance. Once individuals have knowledge pertaining
to the importance of taxation, they will be influenced to comply without any enforcement or
pressure on them.

Holding other variables constant is a statistically significant predictor because (p<.001). The
levels from the regression equation revealed that holding for each independent variable from the
tax sanction of the tax audit was taxpayers compliance by a factor of (β4 =.398, p-value = 0.001)
standardized division. Tax sanction of tax audit would lead to a go-up by beta (.398)

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standardized division. It's important to note that while the likelihood of tax sanction assessment
is a significant factor in taxpayer compliance, a balanced approach is necessary. Tax authorities
should consider factors such as taxpayer education, outreach, and support alongside enforcement
efforts to promote voluntary compliance and maintain trust in the tax system.

There is significant relationship between voluntary tax contributions and taxpayer compliance.
Research findings are not in agreement with the hypothesis since tax volunteers have a
standardized coefficient of (β5 =.371) (p<.022). There is generally significant direct relationship
between voluntary tax contributions and overall taxpayer compliance. Voluntary tax
contributions and taxpayer compliance are distinct concepts, and there is generally no significant
direct relationship between the two. Compliance with tax obligations is determined by factors
beyond voluntary contributions, and a comprehensive approach is needed to understand the
complex dynamics of taxpayer compliance.

There is a significant relationship between penalties and taxpayer compliance because penalties
are an important tool used by tax authorities to encourage compliance with tax laws and
regulations. The imposition of penalties serves as a deterrent to non-compliance and can
influence taxpayers' behavior in meeting their tax obligations. Agreement with the hypothesis
since fines and penalties have a coefficient estimate (β6 = 0.482, p-value =0.031). When the tax
penalty of the tax audit was positive in tax compliance by a factor of β6 = (.482) (p<.031),
standardized coefficients would lead to an increase of (.482). This is in agreement with Pail and
Mustache's (2011) theoretical economic model introduced by Allingham and Sandman in 1972,
which clearly indicates that for each increase in standardized division

Table 15: Regression Analysis Coefficients model

Model coefficients a
Model Unstandardized Coefficients Standardized T-test Sig.
Coefficients
B Std. Error Beta
(CONSTANT) -4.381 .904 7.163 .000
Tax Motivation .744 .147 .414 .5564 .008
Probability of tax .917 .178 .470 .5125 .002
audit

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 Tax Knowledge and .837 .292 .480 .5734 .025
Education
Tax Sanction .924 .1082 .398 .4307 .001
Tax Volunteer .735 .217 .371 .5047 .022
Fines and Penalties .818 .795 .482 .5892 .031

Source: SPSS output from the tax auditors staff respondents coefficients model July2023
b. Dependent Variable: Tax Compliance
a. Predictors: This indicates the absence of coefficients model as these tests prove the validity of
model the study had continued into regression analysis and =TC=-4.381 x1 +744,x2+.917 x3+
.924 x4,+837 x5+.735 x6,+.818)

4.14 Econometric Analysis

4.14.1 Results multiple linear regression

The multiple regression analysis presented in this study is used to test if an independent variable
influences a dependent variable and whether this effect is positive or negative. In this research,
the researcher uses multiple regression analysis, which is used to test whether one or more
independent variables influence a dependent variable outcome variable and if this effect is
positive or negative. However, before rushing towards data analysis and presentation, the
researcher made a diagnostic test for the data collected from the respondents. They have one
independent dependent variable and multiple predictors.

4.15 Model Summary

The Adjusted R-squared shows the variation in the dependent variable that can be explained by
the independent variables being studied. The Adjusted R-squared in this study was (0.948). This
implied that the seven independent variables tax compliances fines and penalties tax audit, tax
motivation of tax audit of knowledge and education of tax audit and field tax audit, probability of
being audited, tax audit related to education, tax sanction of tax audit and volunteer tax audit
could explain 94.8% of tax compliance among large taxpayers in Jimma Zone tax administration
Revenue Authority however of the changed accounted for but other factors.
Table 4.1shows that the coefficient of determination Adjusted R-squared .948 and R square is
0.898 at 0.05 significant levels this shows that other variables not included in this study

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explained 52%of taxpayer’s compliance among large taxpayers in Jimma Zone Revenue and
Authority can be explained by other factors no considered in this study. The findings are in line
with Galete Tolina, (2019) argument that tax audits including fines and penalties tax audit, tax
motivation of tax audit of knowledge and education of tax audit and field tax audit, probability of
being audited, tax audit related to education, tax sanction of tax audit and volunteer tax audit and
tax audit impact on taxpayers compliance. Accordingly, the coefficient of determination of
regression result showed that the model work well.
Table 16: Model summary
Model R R Adjusted Std. Error Change Statistics
Squar R Square of the R F df1 df2 Sig. F
e Estimate Square Change Change
Change
1 .977a .8580 .948 .13554 .8580 169.230 6 129 .000a
Predictors: Constants, Probability of tax audit, tax Knowledge and Education of tax audit, Tax
Motivation, tax, Sanction Severity, Volunteer tax, Fines Penalties tax audit.
Dependent Variable: tax compliances
Source: SPSS Output from survey of tax audit staff respondents model summary
Table 17: AN OVA model
Model ANOVA Sum of Squares DF Mean F Sig.
Square
1 Regression 67.653 6 11.2755 169.230 0.000b
Residual 11.192 129 .08657
Total 78.845 135
A .Dependent Variable: tax compliance
B .Predictors: Constants, Probability of tax audit, tax Knowledge and Education, Tax
Motivation, tax Sanction Severity, Volunteer tax, Fines Penalties
Source: SPSS Output from survey of tax audit staff respondents AN OVA model, July2023. The
table above shows the overall significance of the test, which is reported as follows mean square,
F (6,129, 169.230, 11.192, P<0.05). The degree of freedom of the regression is DF, 4 also, the
degree of freedom of the residual is 135, F the calculated is (.08657, 11.192) and the significant
value or P-value is. 0000b this reveals that there is a significant effect of independent variables on

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the dependent variable. The frequency of tax audits significantly predicts the dependent variable,
tax compliance (F =169.230 P<0.05) significant levels which means the results regarding this
were summarized and presented in the regression analysis of the ANOVA model

4.16 Analysis of Measures

The analysis supported with SPSS software much contributed to the finding. It had contributed to
the data validation and correctness of the SPSS results. The software analyzed and compared the
results of different variables used in the research questionnaires. Excel is also used to draw the
pictures and calculate some analytical solutions.

4.17 Reliability Test

The Cranach’s coefficient alpha was the. Table 4.9 reports the alpha scores for all the variables.
As proposed by nominally (1967 and 1978), The Cranach’s alpha coefficient was within the
acceptable level of reliability of for scale acceptability Cronbach’s Alpha for determinant factors
and tax compliance
.Table 18: Reliability Statistics
Reliability Statistic

Cronbach's Cronbach's Alpha Based on Standardized No of Items

Alpha Items
.893 .895 35

Source: SPSS Output from Survey of tax auditors staff respondents reliability. (SEPT2016/2023)

4.8 Multicollinearity
Multicollinearity is the occurrence of high internal correlations among two or more independent
variables in a multiple regression model are highly correlated. When a researcher or analyst tries
to figure out how each independent variable might be utilized to predict the probability of a tax
audit, tax-motivating Educational and knowledge of tax audits are the independent variables in a
statistical model. Multicollinearity can result in skewed or misleading conclusions. Only
regressions are affected by multiclonality since more than two predictors are involved. When at
least one predictor is a perfect linear combination of the others there is perfect collinearity.
According to statistics books one way of identifying it is to scan the Multicollinearity,
Correlation matrix of all of the predictor variables and if any correlation varies highly a highly

64
correlated of value. Multicollinearity is a scan of the correlation matrix of all of the predictor
variables to see if any correlate very highly correlation tax compliances of above when tax
motivation was goes up standard division Tax Compliance goes up by (.964 and Co-linearity
statistics coefficients holding other variables constant tax sanctions severity statistically not
significant predictor because R= 0.941). (p<0.05)Co-linearity Statistics
Table 4. 19 Co linearity Statistics
Model Co-linearity Statistics Coefficients
Model Multidisciplinary Co-linearity Statistics
Tolerance VIF
1 Tax Motivation .941 1.062

Probability of tax audit .919 1.087

Tax Education .885 1.129

Tax sanction severity .964 1.037

Tax voluntary .972 1.028

Tax penalties .827 1.078

a .Dependent Variable: tax compliance

b. Predictors: Constants Probability of tax audit, tax Knowledge and Education Tax
Motivation ,tax Sanction Severity, Volunteer tax, Fines Penalties
Sources: SPSS output form survey of tax auditors staff respondents Co linearity
Statistics

4.9 Heteroscedastic test

Heteroscedasticity refers to situations where the variance of the residuals is unequal over a range
of measured values. When running a regression analysis, heteroscedasticity results in an unequal
scatter of the residuals, also known as the error term. In statistics, heteroscedasticity happens
when the standard errors of a variable, monitored over a specific amount of time, are non-
constant. Heteroscedasticity is a violation of the assumptions for linear regression modeling, and
so it can impact the validity of econometric analysis or financial models like CAPM. Among the

65
OLS assumptions, the first diagnostic test that was conducted in this study is the heteroscedastic
test, which is theoretically expressed as Brooks (2014) respondent (N =136). It has thus far been
assumed that the variances of the errors are content, which is known as the homoscedastic
assumption if the errors do not have constant variances.
4.21 Normality test
The distribution of the data is another issue of research whether it is normal or not we need to
look at the values of skewers in the SPSS output. Positive values of skewers indicate too many
low scores in the distribution whereas negative values indicate a build-up of high scores. (2015)
Skewers measure the degree to which cases are clustered toward one end of an asymmetric
distribution. In general, the higher the values of skewers this chapter intends primarily to
highlight the methods and techniques used in collecting data for the accomplishment of this
research. This chapter presents various ways in which the study is designed and conducted.
These include the area of the study sample size selection, and study population method of data
collection, processing and analysis. These methods of data collection include questionnaires and
interviews with some of the respondents. Again this same chapter indicates some major problems
encountered by the researcher in carrying out the research .Are from zero, the more likely it is
that they are normally distributed (2015). In a normal distribution, the values of Sieges are zero if
the value distribution is mean (M = 2.06E-15 and STD = 0.981, N = 136).

66
Figure 4.1 histogram dependent variable: tax compliance. A histogram is a graphical
representation of distribution of numerical data to the most approximate value. It explains why
the researcher collected data where it was collected and how it was collected and analyzed. Are
from zero the more likely it is that they are normally distributed (2015) in a normal distribution,
the values of Sieges are zero if the value distribution is mean (M = 2.06E-15) and STD. = 0.981
= N = 136).It explains why the researcher collected data where it was collected and how it was
collected and analyzed. To test the normality assumption the histogram of residuals was used to
check the extent to which the residuals are normally distributed.

Figure 4.2 Normality p.p of regressions standardized residual dependent variable:

To check the linearity assumption in multiple linear regressions the normal P-P plot was used,
the plot shows all observed values somewhat spread along the straight diagonal line. Figure 4.2
in below shows us most of the observed values are spread very close to the straight line; there is
high likelihood that the data are normally distributed and linear.

What is the primary purpose of the objectives of the tax audit?

The primary purpose of the objectives of a tax audit is to ensure compliance with tax laws and
regulations, assess the accuracy and completeness of the taxpayer's financial records and tax
returns, and determine the correct amount of tax liability. Tax audits are conducted by tax
authorities or government agencies to review and verify the taxpayer's financial information,
transactions, deductions, exemptions, and other relevant records. The tax authorities aim to

67
ensure that taxpayers are complying with the applicable tax laws and regulations. The audit helps
identify any instances of non-compliance, such as underreporting income, overstating
deductions, or engaging in tax evasion or avoidance schemes. The tax authorities verify the
accuracy and reliability of the taxpayer's financial records, including supporting documentation
and accounting systems. This involves examining the books, records, invoices, receipts, bank
statements, and other relevant documents to ensure they accurately reflect the taxpayer's
financial activities.
Do you think that tax audits enhance taxpayers' compliance levels? If yes, how would you
explain it?
Tax audits can have a positive impact on taxpayers' compliance levels. Here are a few ways in
which tax audits can enhance taxpayers' compliance .Deterrence Effect: The mere existence of
tax audits acts as a deterrent to non-compliance. Knowing that there is a possibility of being
audited encourages taxpayers to be more cautious and accurate in their reporting. The fear of
potential penalties, fines, or legal consequences can motivate taxpayers to comply with tax laws
to avoid scrutiny. The audit process educates taxpayers about their tax obligations and the
specific requirements of tax laws. When a taxpayer undergoes an audit, they gain a better
understanding of the rules and regulations governing their tax obligations. This increased
awareness can lead to improved compliance in the future as taxpayers become more
knowledgeable about their tax responsibilities.
How do you evaluate the tax audit program in terms of enhancing additional revenue in the
last few years?
Evaluating the effectiveness of a tax audit program in terms of enhancing additional revenue
would require analyzing relevant data and conducting a comprehensive assessment of the
program's impact. However, I can provide you with some general considerations for evaluating
the impact of a tax audit program on generating additional revenue. One way to evaluate the
effectiveness of a tax audit program is to assess whether it has led to a measurable increase in tax
revenue collected. This can be done by comparing the revenue collected before and after the
implementation of the program. However, it's important to consider other factors that may
influence revenue changes, such as changes in tax rates or economic conditions.
Detection of Non-Compliance: Assessing the program's ability to detect instances of non-
compliance is another important factor. This includes identifying cases of underreported income,

68
unreported transactions, or other forms of non-compliance. The number and value of detected
non-compliant cases can indicate the effectiveness of the program in uncovering potential
revenue leakage. Recovery of Unpaid Taxes: Another measure of success is the recovery of
unpaid taxes resulting from the audit program. This involves assessing the amount of additional
tax liabilities identified and collected as a result of the program. Recovering unpaid taxes can
significantly contribute to additional revenue for the government.
Which category of taxpayers and sector are usually selected for tax audit? What would be
the reason behind this section?
The selection of taxpayers for tax audits can vary depending on the jurisdiction and the specific
criteria used by tax authorities. While I can provide some general information on this topic, it's
important to note that the selection process can be complex and may involve a combination of
factors. High-Income Individuals and Business Owners: Tax authorities often focus on high-
income individuals, including high-net-worth individuals, self-employed professionals, and
business owners. These taxpayers typically have more complex financial affairs, which may
increase the likelihood of errors, non-compliance, or tax planning strategies that could be subject
to scrutiny. Large Corporations: Large corporations, especially those operating in sectors with
high revenue potential or complex transactions, are frequently targeted for tax audits. These
audits often aim to ensure compliance with tax laws, examine transfer pricing arrangements,
assess the accuracy of financial statements, and identify potential tax planning or avoidance
strategies. Cash-Intensive Businesses: Businesses that deal extensively in cash transactions, such
as restaurants, bars, retail stores, and service providers, are often subject to tax audits. The cash
nature of their operations can present a higher risk of underreporting income or engaging in
unrecorded transactions, making them a target for scrutiny.
What do you ay as a solution for the difficulties of tax audits and taxpayer compliance with
the tax audit officer?
Improving the difficulties associated with tax audits and enhancing taxpayer compliance requires
a collaborative approach between tax authorities and taxpayers. Clear Communication: Enhance
communication between tax authorities and taxpayers to ensure that expectations, requirements,
and processes are clearly communicated. Provide clear guidelines on record-keeping, reporting
obligations, and audit procedures. This helps taxpayers understand their responsibilities and
reduces misunderstandings during the audit process.

69
Education and Outreach: Invest in taxpayer education and outreach programs to enhance
taxpayer awareness and understanding of tax laws and regulations. Proactively provide
resources, workshops, and online materials to educate taxpayers about their rights, obligations,
and the benefits of compliance. This can help foster a culture of voluntary compliance and
reduce inadvertent errors.
Transparent and Fair Audit Procedures: Ensure that tax audit procedures are transparent, fair, and
consistent. Tax authorities should provide clear explanations of their audit findings and allow
taxpayers the opportunity to provide additional information or clarify any misunderstandings.
Transparency and fairness in the audit process can help build trust and cooperation between tax
authorities and taxpayers.
Adequate Resources and Training: Allocate sufficient resources and provide adequate training to
tax audit officers. Well-trained and knowledgeable audit officers can conduct effective and
efficient audits, reducing unnecessary burdens on taxpayers and minimizing errors or
misinterpretations during the audit process. Risk-Based Approach: Implement a risk-based audit
selection process that focuses resources on taxpayers with higher risk profiles. By using data
analysis and risk assessment techniques, tax authorities can prioritize audits on taxpayers more
likely to have non-compliance issues, reducing the burden on compliant taxpayers.
Technology-Enabled Audits: Leverage technology to streamline the audit process and improve
efficiency. Automated data analytics and digital tools can help audit officers analyze large
volumes of data more effectively, identify potential areas of non-compliance, and target audits
based on risk factors. Technology can also facilitate electronic record-keeping and reporting,
making it easier for taxpayers to comply with their obligations.

70
 CHAPTER FIVE
5. CONCLUSIONS AND RECCOMENDATIONS
5.1 Conclusions
The purpose of this study was to assessing the impact of tax audit on the taxpayer’s compliance
in selected of Jimma zone Revenue Authority. Purposive sample selection technique is employed
and collected data for the following concerned stakeholders such as tax auditor, quality
controllers and head managers of the five sub cities of Jimma zone administration Revenue
Authority. To achieve what was aimed, primary data was collected using Linkers scale
questioners and analyzed using descriptive statistical tools such as mean standard deviation
tables, Spearman correlation coefficients, and econometric models, particularly multiple linear
regression models. The impact of a tax audit o taxpayer's compliance was considered for this
study, namely tax knowledge and education, the probability of being audited, and tax fines and
penalties.
The finding of the study reveals tax motivation and voluntary tax R=.753, .768 P<001 has strong
positive and significant impacts on tax compliance among the large taxpayers in Jimma zone
Revenue Authority and the expected hypothesis is accepted. The study found that tax knowledge
and education tax audits contribute to tax payment before audits, payments of interest by among
large taxpayers in Jimma Zone Revenue Authority. The study found that Jimma zone Revenue
Authority motivation tax and tax audits contribute to tax compliance by large and small category
taxpayers, interest before and after payment audit, and penalty payment after audit deadlines,
payment after audits, payment of taxes among large before deadline and payment of penalties
taxpayers before deadlines.

Probability of being audited was positively and significantly correlated to tax compliance at
R= .724, p<0.05%, thus hypothesis test is accepted. With the respect of probabilities of being tax
audit the study has revealed that educating the taxpayers and conducting discussion, educating
taxpayers, audits can assist to clarify the application of the law by every taxpayer and to identify
improvements require in book keeping and recording and thus contribute to improve compliance
by taxpayers in forthcoming. Identify areas of the law that require explanation; audits may bring
to light area of the tax law that are causing misunderstanding and problems to taxpayers and thus

71
require further efforts by revenue to clarify the law requirements to better educate taxpayers on
what they must do to comply in to the future. The comprehensive of the role to be performance a
revenue authority audit program typically entails the largest allocation of a revenue authority
total staff resources. From this perception solely the audit program represents a sizable strategic
investment that dictates the wants for management decision and practices.

Tax motivation related to tax education Pearson correlations result is positively significant with
tax compliance at (= .744 p<.008). Tax knowledge leaves a significant impact on taxpayer’s
compliance. If taxpayers are not educated and they don’t understand the purpose of paying tax,
they are not dedicated to pay tax rather they tried to avoid and reluctant to pay tax. So, tax audit
will teach such tax payers about the purpose of paying tax and helps to develop their bad
taxpaying experience and helps them to a good taxpayer in the future.

Tax volunteer and record result show in Pearson correlation significant at (Beta= .735 p<0.022).
Pearson correlations coefficient results shows that Tax volunteer and reporting is significantly
positive relationship, and the correlation coefficient with taxyare compliance. Thus as researcher
expected hypothesis is accepted. If taxpayer decreases record and report their business sales daily
the government revenue decreases and audit cannot proceed properly. The study reveals suggests
penalty and reporting is serious aspects for tax compliance for Jimma zone administration
Revenue Authority. This study result Jimma zone Revenue Authority illustrates has poor tax
book keeping and record ethics because of insufficient monitoring taxpayer recording business
books, unable to awareness creation for taxpayer.

The findings that emerged tax sanction show the Pearson Correlation coefficient depicts of tax
rate is strongly positive correlated impact on the tax compliance at (= .837 p<0.025) at
confidence interval level, thus the hypothesis accepted. Positive Pearson correlation coefficient is
the tax compliance for the assumption of the deceasing the absolute risk aversion. For taxpayers
is decreasing absolute risk aversion huge tax rate safe net income for the case of compliance.
Taxpayer is less willing to take the risk and tax compliance increases. This imply that the tax rate
of business income tax rate significant impact on tax compliance. The result indicate that high
tax rate can potentially increase taxpayer compliance as higher income earners will be reluctant
to comply because they will have to pay higher income tax and they are taxed by preparing of
book of account rather than by estimation method.

72
Finally, This study examined the impacts of tax audit on the taxpayer’s compliance in Jimma
zone Revenue Authority and find out that tax audit contributes a lot on taxpayer’s compliance
where there are other several factors that could contribute to taxpayer’s compliance including
taxpayers education mechanisms aligned with the level and understanding of the taxpayer
category for example category “A” and “B” taxpayers need basic tax trainings on record keeping
for tax compliance purposes and this not the training large and international corporations need;
how governments expenditure is accrued, taxpayers awareness of a fair levy system, knowledge
on tax cheating role of taxpayers, role of revenue authority and taxpayer knowledge. The results
designated that tax knowledge leaves a significant impact on taxpayer’s compliance. Moreover,
taxpayer’s compliance is particularly influenced by taxpayer’s personality attribute taxpayers
expressed income and tax corruption record.

5.2 Recommendations

Based on the finding of the result, the recommendation is to encourage compliance it is

important that the tax authority administer the law fairly. The tax authority needs to be strong
enough in order to implement the tax law. There should be more preventative education for the
public and increased education, awareness of tax responsibilities. Hence to create an efficient tax
administration the tax authority needs to strengthen itself by educating and training its
employees, computerizing its operations, and devoting additional resources. Taxpayers should be
educated early in their careers about their tax responsibilities. This directly motivates non-
compliers to continue evading. The probability of an audit and the severity of sanctions have the
strongest impact on tax compliance. Therefore the tax authorities need to strengthen the
inspection of tax declarations an effective compliance program requires the tax administration to
have sufficient powers to enable it to enforce tax compliance to encourage compliance it is
important that the tax authority administer the law fairly. The tax authority needs to be strong
enough in order to implement the tax law effectively Functions such as tax assessment,
collection awareness creation, volunteer tax compliance providing information and enforcement
have to be performed effectively so that they will be perceived as strong and powerful by the
taxpayers. In addition to this efficient service delivery to taxpayer’s compliance is a key factor
against which the strength of the authority is judged. Taxpayers tend to evade to the extent that
they feel that the authority is weak and unable to enforce the law. This directly motivates non

73
compliers to continue evading. Hence to create an efficient tax administration, the tax authority
needs to strengthen itself by educating and training its employees computerizing its operations,
and devoting additional resources.

There should be more preventative education for the public and increased awareness of tax
responsibilities. Taxpayers should be educated early in their careers about their tax
responsibilities. Only through tax education can the concepts of taxation and tax knowledge be
communicated. Furthermore taxpayers need more information about their tax obligations and
their role in promoting the growth of the country's economy and the well-being of its citizens.
Tax education can be a tool to motivate voluntary compliance by taxpayers. In the context of
reaching society at large the tax authority can use electronic media such as radio, television, etc.
as a means to educate taxpayers and change their perceptions about taxation. All of these
promote a positive view of voluntary taxpayer’s compliance. This is to teach citizens a sense of
responsibility toward taxes

Based on the finding of the result the recommendation is:

 To increase the utilization of tax motivation and field audit in Jimma Zone Revenue
Authority to develop tax compliance the member of staff workers and managers must
conducting tax motivating and field audit
 Taxpayers must be keep law and regulation of the country, Revenue Authorities and local
government should be properly creating awareness to taxpayers about their right and
obligation the purpose of tax audit, develop and understanding their bad tax paying practice
and generate good taxpayer citizens for future.
 The Jimma Zone administration Revenue Authority should be training, education initiative
that seeks to increase taxpayer compliance by developing policies on tax audit scheme to
target business with poor tax book keeping record and reporting.
 The Jimma Zone Revenue Authority Managers should be take advantage of developments,
communication, and information and it needs to keep strengthen the use of technology to
improve and ease taxpayer compliance.

5.3. Direction for future research

As identified by Jackson and Million (1986), there are fourteen major factors influencing
voluntary taxpayer compliance behavior, but the present study used only six of the variables to

74
test whether these variables impact tax audit taxpayers' tax compliance in the area. The study
result shows that these are the factors that influence the voluntary compliance of taxpayers,
which is the impact of tax control on taxpayers' compliance in Jimma Zone. Revenue Authority
Administration Interested researchers can then delve into the same topic by including multiple
variables in the model that are expected to influence taxpayers' voluntary compliance behavior.
Another possible study would be to change the sample population into taxpayers by increasing
the sample size and then carrying out a comparative study between taxpayers with accounts and
taxpayers without accounts; to find out if there is a significant difference between the attitudes of
these taxpayer groups towards taxes.

75
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 JIMMA UNIVERSITY
College of business and ECONOMICS
DEGREE IN ACCOUNTING AND FINANCE (MSC)
APPENDIX I

Questionnaire for officers of the by Tax Auditors Jimma Zone

This questionnaire is designed to meet the objective of research titled “The impact of tax audit on
tax compliance: The case of category tax payers in Jimma zone tax and revenue administration
authority. Therefore; the data from this questionnaire will help the researcher to obtain reliable
and valid information. Your open and genuine response is highly appreciated. The questionnaire
has two parts: Part-I is about your personal information. Part-II is the overall questions about the
impact of tax audit on tax revenue. Please read each item carefully and give your honest response
to each one

79
Part –I: Background Information
Please provide your responses by marking a tick (√) in the relevant boxes.
1. Gender:
1. Male 2. Female

2. Age:

1. Less than 30 years 3. 41-50 years

2. 31-40 years 4. Above 50 years
3: level of Educational

1. Certificate 3. BSc/BA
2. Diploma 4. MSc/MA and above
4. Field of study:

1. Accounting and finance 3. Management

2. Economics 4. Others, please specify __________________
5. Current job occupation:

1. Tax auditor 4. Tax assessor

2. Tax investigator 5. Tax audit director
3. Tax audit coordinator 6. Others, please specify__________________
6. Did you have any audit experience before you joined the J RA?

1. Yes 2. No

7. Working experiences auditor?

1. Less than 2 years 4. 6-10 years

2. 2-4 years 5. Above 10 years 3. 4-6 years
8. How long did you work with your current job occupation in the Jimma Revenue Authority?

1. Less than 2 years 4. 6-10 years

2. 2-4 years 5. Above 10 years
3. 4-6 years

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9. Does Jimma Revenue Authority provide training, tutor and/or exam regarding tax law and tax
audit issues soon you employed before you engage in tax audit activities?

1. Yes 4. Sometimes
2. Usually 5. No
3. Neutral
10. Does Jimma Revenue Authority perform a continuous assessment to improve the capability
or competency of staff resources, auditors and investigators in particular, after you occupied the
current position and engaged in the tax audit and related activities?

1. Yes 3. Sometimes
2. Usually 4. No 5. Neutral
Put a “√” mark in one of the columns provided for each possible indicator. Five-point Linker
scales is A (1Strongly agree 2 Disagree Agree 3 Neutral (3), 4 Agree 5 strongly disagree (1)
are frequently used to measure motivations and attitudes.
S.N Tax compliance Stron Disagree Neutral Agree Strongly
gly disagree
agree

11. Tax compliance Since the amount 1 2 3 4 5

of taxable amount and profit is
declared by the taxpayer so, it is
not wrong to omit or understate the
taxable income and the profits
declared.

12 one is paid in cash for a job and

then not reporting it in the tax
return

13 The tax authority has limited

capability to investigate all income
reported to them, so people have
an opportunity to not report their

81
 exact income.

Tax Audit

Tax audit helps to achieve tax

collection targets

Tax audit help taxpayers keep

accurate financial records for
better future tax declarations.

17. Government collects a lot of

money 1from taxpayers

Probability tax audit

Outcomes of tax audit can change

taxpayers’ perception towards tax
compliance

Taxpayers feel comfortable and

cooperate during tax auditing
exercise

19 A clear prediction of tax is

difficult to make

Motivate Tax Payers to Pay Tax

audit

14 Strengthening legal enforcement

and penalties

15 Improving relationship with the

public.

16 Educating the taxpayers and

conducting consultation sessions

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17 Reducing tax rates and making the
collection procedures simple and
transparent

Tax Penalties Audit

18 The prospect of tough penalties

would deter people from evading
tax

19 Tax payers who possess an

awareness of the penalties for non-
compliance are more compliant
than those who do not possess such
awareness

20 If there is no penalty or legal

enforcement there is a possibility
that tax payers may not pay tax

Tax Education And Knowledge

21 Teaching tax evaders to deal

effectively with their taxes would
reduce future offences

22 Tax evasion could be best handled

though informing & encouraging
tax payers to comply voluntarily

23 The awareness of tax audit makes

the tax payers to render a
satisfactory returns

24 Tax audit performed in tax

administrations is to educate

83
 taxpayers.

Tax Audited

25 Tax audit improves the level of

compliance

26 Tax auditors, investigators and

assessors expected to perform
during an audit period is detecting
noncompliance behavior of
individual taxpayer.

27 High probability of audit solves the

problems of tax evasion, avoidance
and other irregularities

Questions regarding tax audit

resources

28 Tax administration has enough

audit staff resources to perform
onsite audits on all taxpayers

29 Enough material and equipment

for audit program

30 Qualified audit staff /well

experienced staffs are available

31 Well organized structure and

suitable office

Volunteer Tax Compliance and

Sanction Severity

32 Every business audited once a year

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 33 Every business audited once within
two years taxpayer knowledge
affects tax compliance through tax
volunteers

34 Every business audited once within

two years Taxpayers that were
audited in the previous audit period
and found no tax liability during an
audit is not selected for the next
audit

35 Tax auditor or investigator usually

performs the audit work
repetitively

Appendix .3
Tax Officers Interview Questions

What is the primary purpose of the objectives of the tax audit?

Do you think that tax audits enhance taxpayers' compliance levels? If yes, how would you
explain it?
How do you evaluate the tax audit program in terms of enhancing additional revenue in the last
few years?
Which category of taxpayers and sector are usually selected for tax audit?. What would be the
reason behind this section?
What do you ay as a solution for the difficulties of tax audits and taxpayer compliance with the
tax audit officer?

85