the performance of Tax Audit in ERCA, LTO branch

Institute of Tax and Customs Administration
Department of Tax Administration
(MA. Program)

Individual Thesis Paper on Tax Audit and Risk Management

A thesis submitted to the Department of
Tax Administration in
Partial fulfillment of requirements for the Master of Arts By - Awoke Damtie (January 2014)

Jannuary, 2014 Addis Ababa Ethiopia
Table of contents
Title Pages

Chapter One
1.1 Introduction
Revenue is probably the most important part of the government and most of its plans and policies also depend on the amount of revenue collected. Government has also given priority in reducing the budget deficit through the mobilization of internal resources.
Good tax system, apart from generating revenue, minimizes distortion of resource allocation and simplifies its administration (World Trade Organization, 2003).
Tax administration is a complex and dynamic responsibility. On a regular basis, leaders are faced with new issues, conflicting priorities, taxpayer compliance and emerging commitments (Thomson 2008). As Berhan and Jenkins (2005) noted, governments of developing countries are eager to create modern tax systems although saddled with weak tax administrations, and sometimes have experimented with tax administration mechanisms that inflict higher compliance costs on the private sector.
In order to make the multipart tax system relatively successful, it should be approached strategically and realistically in order to maximize taxpayer participation, create an efficient filing and audit administration, and encourage private sector growth. Tax involves every aspects of income generating activities and consumption items, and requires not only administrative capacity of revenue authority but also the involvement of private sectors through proper accounting and reporting (Tadros, 2009).
Any tax in a tax system is vulnerable for evasion and fraud, which has become the concern of many countries. For instance, Carousel Fraud and credit and/or refund abuse in European Union (EU) member countries (Keen and Smith 2007) and abuse of tax credit in Bulgaria (Pashev 2006) and the offence of non-issuance of value added tax (VAT) invoices in Ethiopia (Alemu and Deresse, 2009) can be mentioned.
Tax fraud is an intentional reduction of the tax liability stemming from real transactions. As Baurer (2005) noted, it is a deliberate misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability. It typically includes underreporting profits and turnover, overstating deductions, underreporting employee wages, failure to register or file tax declarations, hiding of taxable receipts coming from the production and distribution of real products and services, overvaluing of VAT spent on inputs and abuse of tax return through fictitious transactions and trades.
Tax audit is an extension of the “attest function” of the historical financial audit. It is the audit of an assessee’s accounting and other documentary evidences for the preparation of current tax returns, as well as the supporting working statements, followed by an audit report giving the auditor’s opinion about the degree of correspondence between the information contained in the tax return and the regulatory provisions of tax laws.
In many countries (especially developing and transitional countries), audit performance is reported as a weak aspect of tax administration, irrespective of whether other aspects are working well (Ebrill et al. 2001). Several developing countries do not yet have effective audit programs due to; insufficient numbers of the required highly skilled and appropriately paid audit practitioners, absence of a sound institutional audit practice, illegal cooperation between taxpayers and auditors, lack of clear political support for the tax administration, and the deficiency of an appropriate legal and judicial environment.
On the other hand, audit is not a very welcome procedure for both the taxpayers and the economy. Conducting audits involves costs to the tax department as well as to the taxpayer .Tax administration agencies should, therefore, use their scant resources very judiciously to achieve maximal taxpayer compliance, and minimal intrusion and costs.
Among others, having effective tax audit program is a key success factor for cost minimization and detection of tax evasion and fraud as well as proactively preventing tax frauds (Gupta and Nagadevara undated).
Therefore, this study is conducted to review and examine the tax audit performance of Ethiopian revenues and customs authority the case of large taxpayers’ office.
1.2 Statement of the problem
While the principal source of a government’s revenue should be taxation, in many Sub-Saharan African countries this is often not the case. Many of the Sub-Saharan African countries rely on foreign sources of finance namely foreign loan and aid due to their poor tax administration capacity and collection ability.
The tax base of developing countries adversely affected by administration problems including poorly conceived tax policies and lack of certainty regarding future policy changes. In addition, tax administrations can also create problems for the tax payers as they impose onerous reporting and record keeping requirements, perform excessive inspections and audits, fail to deal with their corrupt employees, and failure to provide transparency in the operations of tax administration (Baurer, 2005).
In Ethiopia, taxation has been used for the purpose of raising as much revenue as possible to meet the ever-expanding public expenditure needs of the government. It is also a mechanism for reduction of inequalities in income distribution, promotion of capital investment and trade, encouraging and/or discouraging certain industries depending on how suitable for country’s economic development program.
However, it is not often the case to collect the potential tax revenue in the country due to lack of awareness of taxpayers as well as paucity of tax agencies‟ cooperation with the business community. Tax systems are usually elaborated without proper discussion with the business community. In addition, the business owners do not have easy access to and clarification on information of the tax laws. The tax agencies do not also provide advising services. As a result, taxpayers misinterpret tax rules and regulations.
Moreover, they lack awareness regarding the tax type to be imposed on their doings, purpose and operation of desk audit, goods and services exempted from tax, negative upshot of contraband trade, and reporting and filing requirements of the tax law.
Tax evasion and fraud are still unsolved problems in the Ethiopian tax system. Which includes; underreporting profits and turnover, underreporting employee wages, failure to register or file tax declarations, dearth of willingness to operate in accordance with tax laws, non-issuance of VAT invoices for buyers, and barter arrangements hidden from tax authorities.
To mitigate such and so fraud problems, therefore, a successful audit program should be implemented which is capable to investigate, detect and prevent loss of tax revenue. To the greatest possible extent, tax systems should be supported by clear and straightforward laws and procedures that facilitate revenue collection, develop taxpayers‟ awareness, and minimize taxpayers‟ effort and compliance costs. The administration should be provided with appropriate enforcement tools, including conduct of effective audit.
Hence, to create an effective and fair tax system, it is vital to address the administration problems that affect it. However, this study is limited to the issues regarding the performance of income tax audit.
1.3 Objective of the Study
1.3.1 General Objective
The main objective of this term paper is to analyze the performance of income tax audit conducted in large taxpayer’s office of Ethiopian Revenues and Customs Authority.
1.3.2 Specific Objectives
This study is undertaken specifically to:
To analyze the income tax audit performance of the branch office
Identify problems of income tax audit
Analyze the role and significance of tax audit in increasing revenue
Trace out the basic concepts of tax audit along with the different methods of its implementations. Provide concrete suggestions to the issues relating to income tax audit problems
In addition to the above specific objectives this term paper tries to answer the following research questions:
What are the income tax audit examination techniques? What are the determinant factors that affect income tax auditing?
1.4 Scope and Limitation of the Study
The study focuses only on analyzing the performance of income tax audit in LTO branch office as well as different problems that are occurred during income tax auditing.
This project is not without limitation, there is a shortage of time to collect necessarily data and there is also shortage of written materials, availability of sufficient current literatures and lack of familiarity with the topic to analyze it further. Budget is also another limitation we may face for this project. Finally it would not easy to get all relevant information from respective offices.
1.5 Significance of the Study
The researchers believe that the result of this term paper would have the following significances.
It helps in identifying and addressing some of the problems related to income tax audit performance in LTO branch of the authority.
The study may contribute to create awareness to the authority’s officials and other stakeholders.
This term paper could be used as an initiation and indication for those who are interested to conduct further study on the related issue.
1.6 Research Design
1.6.1 Methodology
The study will adopt mixed research approach in order to achieve the stated research objective and to answer research questions. Specifically, the study will use quantitative survey and qualitative in-depth interview and documentary analysis. The survey will be conducted with audit experts and audit team leaders. In addition, documentary analysis will be made using annual reports and other documents which will be a relevant to conduct the study.
1.6.2 Data and source
Both primary and secondary sources of data are used for the study. Primary sources are collected through interview and secondary sources are collected from different literatures such as books and other written materials.

1.6.3 Data collection methods
Primary data will be collected through interview and secondary data will be collected from various printed materials and other documents such as books, reports of the branch office, and different circulars of the authority. The tax audit employees for interview are selected randomly from the tax audit department of the branch.
1.6.4 Data analysis techniques
To analyze and interpret the raw data, content analysis method is applied. Primary and secondary data gathered through the above methods will be organized and interpreted by descriptive analysis.
Chapter Two
Literature Review
The literature review chapter is presented in two parts. The first part of the literature review chapter selectively reviewed the theoretical frame work of income tax audit in particular and tax audit in general. The second part of the review literature is focused on the empirical evidences about performance of income tax audit and its procedures as well as techniques.
2.1. Theoretical and Conceptual Frame Work of Tax Audit
An audit is the independent examination of financial statements of related financial information of an entity, whether profit oriented or not, and irrespective of its size, or legal form, when such an examination is conducted with a view to expressing an opinion thereon.1
To the tax administration, tax audit refers to the examination of tax returns by concerned tax officials primarily with respect to checking as to timely arrival, inclusion of all required forms and attachments, and arithmetical accuracy. This may be called internal tax audit.
A tax audit is one of the most sensitive contacts between the taxpayer and a revenue body. The presence of an auditor in a taxpayer’s private dwelling or premises, coupled with the exploration of private and business issues and the gathering of information from taxpayers’ books and records, or just the disruption of day-to-day workflow, represents a burden on the taxpayer and may be seen by some as an unwarranted intrusion into their affairs. Notwithstanding this, tax audits remain the only effective method for ascertaining additional facts or verifying provided information.
An income tax audit is an inspection conducted by a government representative to confirm that someone’s taxes were prepared correctly. Tax audits are very intimidating for most taxpayers, and the important thing to remember about audit notices is that they are not accusations, and that taxpayers are not being required to prove that they are not guilty of something when they are audited.
The tax audit function plays a critical role in the administration of tax laws in all countries. In addition to their primary role of detecting and deterring noncompliance, tax auditors are often required to interpret complex laws, carry out examinations of taxpayers ' books and records, while through their numerous interactions with taxpayers operating very much as the "public face" of a revenue body. These factors, as well as the absolute size of the audit function in most revenues bodies, provide a strong case for all revenue bodies paying close attention to the overall management of the tax audit function.
A tax audit is an examination of whether a taxpayer has correctly reported its tax liability and fulfilled other obligations. It is often more detailed and extensive than other types of examination such as general desk checks, compliance visits or document matching programs (OECD 2006a). As Biber (2010) noted, the role of an audit program in a modern tax administration must extend beyond merely verifying a taxpayer’s reported obligations and detection of discrepancies between a taxpayer’s declaration and supporting documentation. Most taxpayers’ report their tax liabilities more accurately if they believe that the tax administration has the capacity to detect any unreported liabilities and that heavy penalty may be applied when they are detected (Biber 2010). Thus, tax audit results in increased tax revenue in two ways: (1) directly through assessment of additional taxes; and (2) indirectly by discouraging underreporting of liabilities by all taxpayers. Further, Barreca and Ramachandran (2004) noted that the purpose of tax audit is to check the evasion of tax and ensure compliance in accordance with the laws and regulations. The subsequent subsections discuss thoroughly about tax audit in a tax administration system that includes characteristics of effective audit program, types of tax audit to be performed, audit case selection methods, examination techniques to be applied for tax audit, and characteristics and required capabilities of effective tax auditors. 2.1.1. Types of Tax Audit
Tax audits can vary in their scope and the level of intensity to which they are performed. The nature of audits conducted should reflect the risks to be addressed and desired audit coverage of the taxpayer population. Too many narrowly focused spot (issue) audit provides a high level of audit coverage but at the expense of audit quality, tax revenue, and missed opportunities to properly detect taxpayers’ noncompliance. On the other hand, audit activities with an excessive number of in-depth examinations reduce the numbers of audits that might be conducted, possibly leading also to less overall deterrent effect (OECD 2006a). Therefore, it is inappropriate to carry out all audits on the basis of comprehensive examination of documentation across all tax obligations and all periods that could be open for amendment. Such approach waste resources targeting compliant taxpayers and limit the number of audits that can be undertaken. Therefore, revenue bodies should aim to achieve a balanced program of audits that considers audit coverage, audit quality, and overall deterrent considerations (Biber 2010). As Tait (1988) indicated, there are two main types of income tax audit: field audit and office audit. A field audit, which is conducted at the taxpayer’s place of business, involves third party contacts with suppliers or other government entities to obtain information to validate the accuracy of books and records. However, office audit is generally limited to the checking of returns for arithmetical correctness and general conformity with legal requirements. It includes the verifications of exemptions, claims for credit, and checking for self-consumption. As Ebrill et al. (2001), Grandcolas (2005), Harrison and Krelove (2005), OECD (2006a) and Biber (2010) noted, tax audit program in a function based administration includes desk audit or verification, field audit, registration check, advisory audit, record keeping audit, refund audit, issue-oriented audit, comprehensive or full audit and fraud investigation. The following briefly reviews these tax audit types.
Desk audit or verification: This type of audit usually carried out annually and primarily based on: (1) a review of income tax and VAT returns, or basic ratios comparing with previous periods or other taxpayers in similar industries, and (2) the crosschecking of information included in the taxpayer files. It involves basic checks conducted at the tax office when the auditor is confident that all necessary information can be ascertained through in-office examination. Information technology (IT) systems should provide strong support for these verifications.
Field Audit: It is a detailed examination of taxpayers‟ books and records to determine whether the correct amounts were reported on the tax returns. The auditor may also obtain information from other sources such as banks, creditors and suppliers, to confirm items on returns. A field audit usually includes one or more of the following taxes: income, franchise, sales and use, withholding, and excise taxes. The audit is conducted at taxpayers‟ place of business, home, or at the office of their accountant, attorney, or other person who may represent them. The auditor tries to select the place that is most appropriate under the circumstances and most convenient for them.
Registration check: This takes the form of unannounced visits to taxpayer’s premises for new enterprises (mainly small and medium sized) to detect businesses operating outside the tax system. As Ebrill et al. (2001) stated, during this visit, the tax officer ensures that the taxpayer: (1) has a basic understanding of their obligations; (2) keeps appropriate records (book keeping review should be mandatory in case of voluntary compliance when the turnover of the taxpayer is below the registration threshold); and (3) issues proper invoices when required by law. This type of visit is a quick check on businesses to establish that they are correctly registered. It should not take more than half a day. Advisory audits: It involves the auditor’s visit to newly established businesses. They advise them regarding tax types, filing of returns, payment of amounts due, record keeping to be maintained, refund claims, risk of audit and sanctions of noncompliance. These visits are very appropriate when introducing new tax laws.
Record keeping audit: It is unannounced visits to the taxpayers‟ business premises to check whether the appropriate records are kept and VAT invoices are issued.
The visit points out the obligations of the taxpayer regarding the keeping of records and followed up with penalties if the taxpayer continues to disregard record keeping requirements.
Refund audit: A pre-refund audit should be undertaken to verify the taxpayer’s entitlement to a refund prior to processing a first refund claim particularly for new registrants. It is also carried out where the refund claim varies significantly from established patterns and trends. Audits of further claims should be carried out selectively. Refund audit should focus only on the period covered by the claim.
Issue-oriented audit: It should be directed at verifying items for which errors have been detected in the returns (atypical ratios, gross revenues, comparison of gross sales to imports). It should focus on a single tax type and covers no more than one or two reporting periods. Single-issue audits are confined to one item of potential noncompliance that may be apparent from examination of a taxpayer’s return. Given their narrow scope, single-issue audits typically take less time to conduct and can be used to review large numbers of taxpayers involved in similar schemes to conceal noncompliance. Comprehensive or full audit: All cases where serious underreporting or evasion has been detected under any of other audits should be forwarded to a unit responsible for undertaking comprehensive audits of all tax liabilities. It typically entails a comprehensive examination of all information relevant to the calculation of a taxpayer’s tax liability for a given period. This audit may cover all tax obligations over a number of tax periods, or extended to several years up to the limit provided for in the law. The objective is to determine the correct tax liability for a tax return as a whole. As this audit is usually time consuming and costly to undertake, it should only be applied to those taxpayers if there is an indication of under reporting that may impact across taxes. It requires considerable resources and reduces the rate coverage of taxpayers that could otherwise be achieved by a more varied mix of audit types.
Fraud investigation: It is criminal investigation that arises where the most serious cases of noncompliance that have criminal implication- fraud, evasion, and criminal activity- are detected. Such investigation requires special skill including meeting evidentiary requirements, seizure of evidences or records, testimony from key witnesses and preparing briefs for courts. Hence, it should be undertaken in accordance with criminal procedure laws. As OECD (2004a) stated, tax authorities should maintain a dedicated organizational unit responsible for the handling of serious cases of tax fraud or evasion.
2.1.2. The effective tax audit program
Tax audit is one of the longest standing and accepted compliance strategies in tax administration. The tax audit program provides visibility to the compliance and enforcement arm of the tax administration (Thomson 2008). The auditing and spot-checking of records, coupled with a system of adequate penalties for detected cases of fraud, is the universal method for tax control and the prevention of tax evasion. Tax evasion can be brought to light only by a means of an effective audit program (Tait 1988). Tax audit also helps tax agencies to achieve revenue objectives that ensure the fiscal health of the country and individual states. It derives voluntary compliance and generates additional tax collections, both of which help tax agencies to reduce the tax gap between the taxes due and the amount collected (Barreca and Ramachandran 2004). Furthermore, a well structured tax audit program can provide valuable support in gathering information on the health of the tax system (including patterns of taxpayers‟ compliance behaviour), educating taxpayers (improving future compliance), and identifying areas of the tax law that require clarification or addressing deficiencies in the law (OECD 2006a). Accurate and timely self-assessment and compliance with tax by taxpayers is achieved only through highly visible and effective audit programs, including the consistent application of strong sanctions where noncompliance is encountered. Taxpayers must feel that there is a good chance that unreported liabilities and other forms of non-compliance have been detected during an audit (Biber 2010).
When an audit program is ineffective, it may result in the deterioration of tax compliance and a loss of credibility of the tax administration. Taxpayers may not be deterred from minimizing their tax liabilities if they believe that there is a little chance of being audited (Ebrill et al. 2001).
A good audit program employs strategies to optimize both the direct and the deterrent effects of audits. The first can be achieved by auditing a higher percentage of the large taxpayers (Biber 2010). Although the frequency of audit is a contentious issue, the judgment is always a delicate balance between the treat of audit to check the temptation to evade and the cost. Where the tax system is fairly well established, audits of 15 percent to 20 percent of registered traders a year are sufficient. However, it is not only the crude number of audits that is the most useful measure of need (Tait 1988).
As Hellenrstein (2005) and, Harrison and Krelove (2005) noted, the most effective income tax audit programs are those developed within an overall risk-management framework, and marked by the following design features and principles:
A broad coverage of taxpayer groups (by size and sector) and compliance issues;
Audit resources spread across all elements of the program. This ensures that a disproportionate share is not absorbed in verifying refund claims prior to payment;
Pre-refund audits limited to only high-risk cases. Lower-risk claims are subjected to selective post-refund audits;
Audits of accounting systems rather than individual transaction checking, especially with large taxpayers;
Income tax audit program should have close coordination with audit programs of other taxes, particularly VAT;
Consistent application of appropriate penalties for noncompliance; and
Investigation of cases involving serious fraud with a view to prosecution under the criminal code.
According to OECD (2006a), audit plan provides a path to follow to ensure that the audit is performed effectively and efficiently. However, it should not be treated as set in stone once created. Case planning must be a flexible tool and the original audit plan should be reviewed and updated regularly during the course of the audit. Thus, characteristics of effective audit plans are: Flexibility to allow for unusual audit issues, adequacy of internal controls and the adequacy of books and records;
Alignment with any quality assurance framework; and
A clear focus, with potential areas of concern noted during the preliminary review and audit procedures selected that can address the concerns identified. 2.1.3 Audit Case Selection Methods
Tax administrations do not have sufficient resources to perform thorough on-site audits of the activities of all taxpayers or comprehensive crosschecking of all invoices or transactions. Tax administration, with limited resources and relatively large numbers of taxpayers to administer (especially in the small and medium enterprises), must design the audit program to deploy audit resources in a risk-based way with a view to achieve the most possible compliance and revenue objective (Thomson 2008 and OECD 2004a). Accordingly, the first key to successful audit is the case selection methodology. It is critical to select audit candidates consistent with program objectives. Whatever the audit objectives have, the ability to narrow the pasture of potential audit candidates is necessary to achieve program objectives and optimal use of audit resources. Regardless of how automated and efficient the audit process, audit effectiveness would not be realized under the selection of inappropriate audit candidates. Hence, managing an effective auditing program involves decisions as to the selection of best audit case strategy or combination of strategies. The selection strategies may vary by tax type. It may be based on either reported tax amounts or the industry type (Barreca and Ramachandran 2004).
Case selection through the use of risk management techniques is necessary to ensure that the audit program is fully in line with the administration’s compliance strategy.

2.1.5. Audit workforce capabilities
As OECD (2006a) stated, revenue bodies must manage and develop their audit workforce to deliver their planned outcomes through increasingly designing and implementing capability or competency models. Capability or competency model refers to a formal specification of the skills, knowledge and attributes of staff that are required to perform a specific job in an efficient and effective manner. The model generally contains job descriptions, functional descriptions, and competency profiles using task-related competencies. It is typically supported by training, exams, and educational requirements to ensure and build capability. The model is used as a basis for managing performance, training, staff development, and recruitment across the audit function. Different capabilities are required for work performed in different market segments, or on clients exhibiting different behaviours towards tax compliance. Typical points of difference are capabilities required for noncompliant aggressive clients, audit work with large businesses (deeper and more specialized knowledge about specific regulations is required for this segment), performing system and electronic data base audits, and conducting criminal and fraud cases (OECD 2006b). According to OECD (2006a) stated, the required capabilities of auditors are generally identified by analyzing the activities required to perform particular audit tasks, and through practice and experience. In addition to their primary role of detecting and deterring noncompliance, tax auditors are often required to interpret complex tax laws and conduct intensive examinations of taxpayers‟ books and records. Hence, revenue bodies pay close attention to the overall management of the tax audit function, and particularly to the strategies and methods used for recruiting, developing and managing individual audit staff. Thus, tax auditors should have a capability to: conduct investigations, determine compliance, tax accounting and financial analysis, conduct research and analysis, make effective decisions under the law, effective communication, apply work processes and procedures, and manage own work and relationships.
2.2. Income Tax Audit Techniques and Performance Audit Measurements
2.2.1. Examination Techniques
A tax auditor applies various techniques to examine the books and records behind a return. The techniques to be used depend on the taxpayer and the tax regime concerned. As Biber (2010) noted, an effective case plan can be cognizant of a range of investigative and analytical approaches that may vary depending upon the area of risk and the circumstances of the particular taxpayer. The decision regarding the type of tests to be undertaken as well as the records needed by the auditor to address specific issues is influenced by the nature of the taxpayer’s operations, adequacy of books and records, and materiality of potential adjustments. According to OECD (2006a), the techniques used for audit examination purposes include analytical review, investigative approach, field examination, record examination, and counterpart examination.
2.2.2. Empirical Evidences on Income Tax Audit Performance
The finding of the study by Bright et al. (1988) indicated that income tax audit assessment based on appropriately drawn and analyzed statistical sample do not suffer from the defects that the courts have correctly concluded mar assessments based on non-statistical samples. Without sampling, it may be literally impossible for a tax examiner with a limited staff to audit an entire period especially when dealing with a taxpayer who conducts a large volume of transactions. The study further indicated that sampling techniques allow improved economies in the use of government resources in that tax administration in general and income tax administration in particular can be more efficient, fairer, and less intrusive if the technologies used for identifying and measuring tax deficiencies are expanded to include controlled use of statistical sampling. The common interest of minimizing the duration of tax audit for both the tax administration and taxpayers can also be achieved with sampling techniques. However, statistical sampling cannot provide an exact determination of tax owed, and the uncertainty adjustment may sacrifice too much revenue.
The study also examined the impact of alternative tax rates and penalty levels on earned and underreported income. Experimental design was adopted, and laboratory labour setting was used to test the effects of audit schemes, tax rates, and penalty levels on underreported income and work effort. The three independent variables that were manipulated include; tax rate, audit scheme (the decision rule the taxing authority followed in determining reports to be audit), and penalty for underreporting. The audit scheme took on three levels that differ principally in the information used by the taxing authority to determine self-reports to be audited: random (no information), cut-off (reported income information), and conditional (both reported income and an estimate of true income). The experimental results of the study by Collins and Plumlee (1991) indicated that audit schemes that incorporate some preliminary information signal sent by the taxpayer might be more successful in curbing underreporting than purely random audit models. Nonrandom schemes are most effective when tax rates are low and penalty levels are rather high. Further, reported income and actual income do vary at the same time in that electing to underreport also earn more actual income. In USA, Smith and Stalans (1994) also studied the negotiating strategies preferred by taxpayers and auditors for dealing with tax audit disputes. The study adopted a pre-audit open-ended interview conducted with a randomly selected sample of taxpayers and state tax auditors that drawn from four field offices of the Oregon Department of Revenue (DOR). For analysis purpose, the study used four general strategies based on the three choices. These strategies were going along, cooperate, actively assert, and hold firm.
The results of this study revealed that the strategic preferences of both taxpayers and auditors is influenced by the nature of the dispute, general taxpayer’s attitudes toward taxpaying and tax administration, the difference in formal power, and the perceived role obligations of auditors. As the study results showed, tax auditors are more likely to include holding firm as one of their strategic choices. Whereas taxpayers who has an objective to minimize the time and effort they devote to the audit are more likely to prefer the cooperative strategies, but those taxpayers who believe that they can influence the decision making of the auditor are more likely to prefer the assertive strategies. The study further indicated that taxpayers who support taking advantage of loopholes and ambiguities in the tax law tend to prefer the assertive strategies, and those who want to minimize their involvement are more likely to prefer cooperative strategies.
There was another study conducted in USA by Rhoades (1999). Rhoades (1999) studied the impact of multiple components reporting on tax compliance and audit strategies. The study modeled taxpayer compliance behavior and tax authority audit strategies within the context of a multidimensional report of taxable income, and analyzed the impact of component reporting requirements on taxpayer incentives to misstate the tax liability. The study developed a model on a strategic tax reporting and detection in which taxpayers privately observe and report on two components of taxable income, denoted A and B. The sum of the two components represents the taxpayer’s true taxable income.

Chapter Three
Data Analysis and Presentation
The central focus of this study is to analyze the performance of income tax audit in ERCA, LTO branch office. Thus, in this chapter the response for the interview question by tax auditors and tax audit team leaders of the branch are presented, analyzed and interpreted in their respective. In addition the opinions remarked by the tax audit officials and inspected information that is collected from tax audit working papers and audit reports are included.
Finally, the chapter identified its findings and gives its own conclusions by relating the result with the literature review found from various studies, books, journals and others take in to consideration in chapter two of this term paper.
3.1 General information about the Respondents
A total of 10 respondents from staff members of ERCA LTO branch office participated in the study with response rate of 98%. Among respondents 7(70%) were males and 3(30%) were females. Education is an important factor influencing an individual’s attitude and understanding on various factors presented in the interview. Generally, educational attainment of the research respondents were excellent i.e. first degree and above. Regarding their field of study, majority of the respondents were with the profession of business, finance and economics.
Regarding respondents’ current position; 5(50%) were auditors, 3(30%) senior auditors and 2(20%) team leaders were involved for the interview.
3.2 Current legal framework regarding tax audit in the branch office
With regard to whether the current legal framework regarding tax audit sufficiently supports the audit system to function properly, 7(70%) of the interviewees have shown their agreement and 3(30%) of the respondents disagreed with respect to the tax auditors have appropriate powers of access to information and authority in making decision in the audit activity.

As already reflected by audit experts of the branch, the legal frame work of the auditing system of ERCA in general and the branch in particular lack some strength and hence it limits the power of audit officials to undertake their tasks effectively and efficiently.
3.3 Content Analysis of open-ended structured interview questions responses
Open ended interview questions had been forwarded to tax auditors and tax audit officials to mention the problems that actually hampered the overall performance of income tax audit operations of the branch. Accordingly, some of identified short listed problems that are stated by tax auditors that limit the income tax audit performance of the branch are summarized below.
Capacity problem and limited number of auditors- responses from managers indicated that capacity problem with limited knowledge of the audit staff towards tax laws and regulations and their limited number as major problems and some of the causes they identified are: the recruitment policy problem, lack of profound education and training, being less competent, limited experience of auditors, the unattractive remuneration scheme and lack of reward scheme of the authority, and budget constraint of the government. This can limit the auditing motivation and effectiveness of tax auditors that directly affects the performance of the auditing system of the branch.
Corruption- respondents from the branch’s team leaders indicated the existence of corruption in the audit staff and the causes identified are: the degree of self centeredness by taxpayers and their culture and attitude, taxpayers motivate auditors for corruption, and insufficient salary and transport pay of the auditors.
Lack of integrity and ethics within the tax auditors- lack of motivation and follow up with effective monitoring and strict disciplinary action towards the tax auditors by the organization, conflict of interest, insufficient salary, and recruitment problem were the main causes identified by the respondents to this problem.
Resource problem- respondents identified that there is lack of required material as well as financial recourses because of the less focus given by the government and limited annual budget of the organization.
High turnover rate of audit staff, low motivation to employees and taxpayers, low remuneration scheme and training to auditors, unplanned routine work given to the tax auditors, poor follow up of the management to auditors, lack of well organized and integrity of the systems and procedures, which brings to the existence of information gap between managers and employees, and the taxpayers awareness regarding the tax laws were the main problems identified by the respondents.
Absence of an independent performance monitoring and evaluation systems- as a number of respondents indicated that, this is due to lack of commitment of top management and it creates tax audit staff demoralized to perform efficient tax audit.
When we come to see the summary findings of income tax audit effectiveness, due to under developed audit case selection system, lack of standardized audit manual and audit selection criterion the tax audit case selection process is not in a position to help to target on those noncompliant. Consequently, the service provided by the tax audit is not satisfied the tax payers that are investigated. Furthermore, regarding the adequacy of tax audit staff monitoring and evaluating system most of the respondents are not satisfied with and motivated by the existing evaluation system of income tax audit. According to the above information provided by interviewees; by this and other problems as well as factors the performance of the income tax and other tax auditing team is limited to achieve its goals and objectives. That is the tax audit department performance is hardly influenced by the lack of skilled senior audit experts, absence of independent monitoring evaluation system, lack of adequate and fair reward system in the branch as well as in the authority, vagueness of rules and regulation, corruption of different tax officials including tax auditors, the presence of greedy tax payers and etc.
In addition to previous presentation of tax auditors explanations; the following qualitative and cross-sectional interview based information from staff members of the branch are used to assess determinant factors for the effectiveness and efficiency of income tax audit performance. Key audit characteristics, which were believed to influence the performance of the tax audit, were considered in the term paper analysis.
According to interviews since compliance regimes in our case ERCA operate within the unique legal, cultural and administrative background of individual tax payer communities; there are a number of common prerequisite features and requirements that need to be in place to ensure a good level of effectiveness and efficiency for audit activities and to support continuous improvement. They are:
A comprehensive legal framework, including an appropriate regime of sanctions.
Well-defined organizational and management processes, including a comprehensive performance measurement framework.
Well-defined audit techniques and adequate support arrangements; and
Adequate human resource management and development programs. These issues are elaborately described in the following manner.
3.3.1 Legal frameworks
The ideal legal framework regarding tax is a single, comprehensive piece of legislation that defines all the legal right, requirements, and recourses for taxpayers and the tax administration, alike. The taxpayers’ response indicated that the legal framework that defines the taxpayers’ record-keeping obligations is not sufficiently comprehensive and does not assist for the smooth audit work and to fulfill the required obligation of tax.
The legal framework of the authority includes: the tax officials access to taxpayers’ books and records, third party information sources(financial institutions, traders, external auditors, and other institutions) and the countries’ other revenue bodies like Ethiopian customs authority, the powers of the authority to amend returns, and sanctions for non-compliance.
As a result, the response of the staff members of the branch shows that the legal framework sufficiently supports the audit system to function properly in providing the appropriate powers of access to information and authority in making decision in the audit activity. To conclude, therefore, the details regarding the taxpayers’ record keeping obligations within the legal framework are not clearly indicated and this will have an adverse effect on the smooth functioning of audit.

3.3.2 Resources for the tax audit section
Adequate human and material resources have direct impact on the effectiveness of the tax audit. The international best practice shows that the proportion of overall human resource devoted to audit and other verification activities exceeds over 30% of total human resources. In reference to the assessment done by the Ministry of Finance and Economic Development on October,2007 on Ethiopian revenue sector reform performance progress, this indicator falls below the international standard. It is also true for the branch’s human resource proportion.
3.3.3 Planning, Monitoring, and Evaluation of the Audit Function
A high degree of planning, setting performance targets, monitoring the attainment of these targets, evaluating the performance of the audit function ensure that the audit activities are contributing in an optimal way to the goal of improved overall compliance with the laws. According to the audit manual of the organization there is well established planning procedures that set objectives, targets and performance expectation against which to measure progress, and for monitoring and evaluating techniques. However, responses indicated that the tax audit plan is not appropriately implemented and lacks an effective program evaluation and monitoring.
3.3.4 Operational management
To apply an effective and efficient audit work, in accordance with the strategy, a clear and efficient operational management structure is also required which includes the delegation of work, auditor supervision, team leaders involvement in all phases of audit, and clear statement of policy on the scope and intensity of audits to be conducted. The branch’s auditors conduct spot or compressive audit, that is, by selecting some documents or comprehensively all documents. The choice and preference of the one to another is dependent on the magnitude of tax risk associated with the case and the number and qualification of the existing audit staff.
A spot audit is used to focus on particular areas of concern. Comprehensive audit is an audit conducted to confirm the taxpayer’s compliance with all of the tax proclamations concurrently which need to conduct sufficient test of the taxpayers’ books, records and available information to determine the taxpayer’s actual tax liability. In this respect, the research response revealed that the authority’s management has clear policy statements regarding the scope and intensity of tax audits to be conducted by the branch; however the audit work lacks proper follow up and monitoring by the management.
3.3.5 Performance Objectives and Measurement
Measuring effectiveness is best done by using a number of indicators, of both outputs and outcomes, as no single reliable measure can capture every aspect of audit effectiveness. It is particularly hard to determine whether compliance has improved due to audit activity or some other causal influences, it is essential that indicators are devised and used to judge and to improve the levels of effectiveness in audit programs and achieve the audit objectives.
The audit program of the authority has as its overall objective, which it shares with other authority’s programs such as taxpayer education and taxpayer services, and the encouragement of a high level of taxpayer voluntary compliance. However, the research finding indicated that the branch’s audit function has not achieved the required level of performance in balancing the ‘coverage’, ‘quality’ and overall ‘deterrent considerations’ of tax audit. Moreover, the tax audit system of the office is not sufficiently promoting voluntary compliance by taxpayers with the tax laws and has less significance in contributing the legitimacy of taxpayers. In addition to this, the interviewees’ responses indicated that the existing audit program has less contribution in achieving the desired outcome of audit work: in enhancing the taxpayers’ awareness towards the tax laws and compliance, promoting public confidence, changes the taxpayers’ attitude to audit for a better, appropriate application of the tax, minimizing disruption to compliant taxpayers. This is because of the problems stated earlier by tax audit officials of ERCA large tax payers’ organization.
3.3.6 Audit techniques and support tool arrangements
Audit support tools
The success in performance of any audit program has a direct relationship with the quality of the individual audits that comprise that program. An audit should be conducted based on the following ways;
Accurate - fair
Efficient - Objective
Transparent - complete
Defensible - consistent
However, the some interviewees’ response indicated that the audit procedures and policies that the authority is undertaking and carried out by the branch lack accuracy, efficiency, fairness, objectivity, transparency, completeness, consistency, and defensibility, even if, the data collected from the few employees of the branch shows the existence of a comprehensive documented set of tax audit policies and procedures that is readily accessible to all audit staff and ensure effective and efficient audit performance. However, since majority of the interviewees did not agree on this issue this indicates that the audit policies and procedures have implementation problem and taxpayers are not satisfied with the audit function. This will result to the low level of voluntary compliance of taxpayers and low audit performance of the branch.
3.3.7 Pre-contact Analysis and Case Selection Methods
Application of risk management techniques in the case selection for audit provide assurance to administrators, in a strategic sense, that the most important risks to overall compliance, are being addressed in an optimal way and is key for successful audit.
The screening committee will assess the declarations of taxpayers for all taxes and will select taxpayers for audit to test compliance with the law. After reviewing a taxpayer’s declaration, considering information about the taxpayers assembled by the data compilation unit and the taxpayer’s compliance history, the screening committee will apply appropriate risk criteria in selecting a taxpayer for audit using manual and/or computer-based case selection systems. Some of the risk criteria used by the audit section of the branch are: the revenue potential of the case, potential loss of revenue, history of taxpayer related to late or non payment of taxes and category or industry type where non compliance is suspected. Regarding the risk management techniques that the branch is maintaining, research finding shows that it is effective and efficient to detect the high risk areas of tax evasion and is in line with the organization’s compliance strategy.

3.3.8 Examination Techniques
In order to determine the right amount of tax liability of a taxpayer and to improve the performance of the branch’s auditing, it is essential to apply various techniques of examination during the course of audit.
According to the interviews response the branch’s auditors are required to conduct as much research on the taxpayers’ operation and all the procedures to be taken at the taxpayer’s premises and in office are stated in the audit manual. Before commencing the audit, the auditor reviews all available and relevant information on the taxpayer maintained within the branch office to become familiar with the taxpayers operations, possible compliance issues. The audit will be conducted at the premises of the taxpayer to review the taxpayers’ books and records. The auditor can also obtain information from third parties like financial institutions, external auditors, and customers and suppliers of the taxpayer. The analysis of the responses indicates that the existing examination technique of the branch is effective in detecting fraud and determining the accurate tax liabilities, but a lot to go to improve their performance of their income tax auditing ability.
3.3.9 Finalizing the Audit
It is important that audits are finalized according to a proper and consistent process to assure a defensible outcome, and a level of customer satisfaction. And indirectly it assures consistency across the population, and that learning points are picked up and processes adjusted over time. Moreover, good quality working papers are an integral element of a finalized audit and has vital tool within any audit. The responses demonstrate that auditors fully document working papers and develop clear discussion with taxpayers during the course of audit. However, information obtained from the circular of the authority indicates different problems such as the audit work lacks transparency and proper discussion at the time of audit is not democratic which affect the performance achievement of the audit departments.

3.3.10 Audit Workforce Management Issues
Without competent staff, tax audit activities will not achieve their objectives. Competency models and competency improvement activities help develop and manage the audit workforce. Performance management is an important tool shaping auditor behavior. Maintaining staff motivation levels is also essential for all audit staff. Pay will always be a strong factor in influencing the recruitment and retention of staff.
The branch has a formal process for setting out and monitoring performance at the team levels based on the measurement criteria for auditor performance. This includes numbers of cases worked, time for each type of audit, cost, revenue per day, quality of work, and number of audits provided on the weekly performance evaluation form. The plans are used to provide guidance to individual staff members with reasonable expectations about audit time, resource, number of audit, and day quality of work as performance standards.
According to the assessment result of both qualitative and secondary data, the main findings observed about the human resource management issues were:
There is lack of adequate skill upgrading training
The existing evaluation criteria applied to evaluate the auditors performance lacks effectiveness in evaluating the auditors’ performance.
High turnover rate of audit staff that resulted in the lack of required skilled personnel.
Lack of appropriate skilled personnel with limited knowledge of the audit staff towards tax laws and regulations and the motivation schemes and remuneration policy are poor to maintain competent staff.
The existence of corruption, lack of integrity and ethics within the tax auditors.
Unorganized assignment of tasks.
3.3.11 Knowledge of Taxpayer
Knowledge of the taxpayer regarding the tax laws and regulation is an important factor for the existence of an effective and efficient audit function. Even if education is undertaking by the authority (through electronic and print media, workshops and seminars), the response of the staff from the branch office reveled that, the taxpayers’ knowledge towards the tax laws and regulation is at its lower point. Furthermore, reports of the branch shows as it is insufficient to maintain the desired level of taxpayer’s awareness’ towards the tax laws and regulations. This greatly affects the performance of the branch’s tax audit department since it does not get all the necessary documents compiled that are essential to undertake income tax auditing because of the low awareness level of tax payers of the branch.
3.3.12 Motivation of Taxpayers
Motivating compliant taxpayers and citizens for their information which is essential for the audit function has a vital role in enhancing compliance as well as the effective performance of tax audit result. However, the responses of interviewees revealed that the branch has low motivation scheme to the compliant taxpayers as well as to citizens who provide essential information. This also has negative effect on the performance of the tax audit department and hence the revenue which is generated through the audit department will decline.
3.3.13 Technological Improvement
Tax auditors were interviewed about the impact of technological improvement that is the introduction of SIGTAS on the performance level of income tax audit in the branch. They replied by mentioning the advantages of SIGTAS to undertake pre auditing as well as post auditing activities such as to gather the necessary information about the concerned tax payer to be audited, to register audit findings as well as audit working papers, to perform different calculations, to record cashing and other transactions performed by the audit department, and etc.
This improving technology is intended to provide the necessary tools to Department of Income and other tax audit employees to employ it in performing audits using taxpayers’ electronic data. This is because voluminous transactions that are kept by the tax payers are hard to handle manually during the audit process unless they are managed by computer assisted hard ware and soft ware to calculate the tax liabilities that are not declared by the tax payers. Therefore the use of improved computer and other technologies that are beneficial to the branch’s tax auditing activities are strongly recommended as the interviewees explained to us.
Chapter Four
Conclusion and recommendation
4.1 Conclusion
The performance of ensuring compliance of tax payers is mainly dependent on the effectiveness and efficiency of the tax audit department activities. This is because the performance the of the tax audit department has great impact to increase the amount of tax collected from the concerned tax payers, and to reduce the number of tax payers that are engaged in avoiding and evading income and other taxes by creating behavioral impact. Because of these and other justifications ERCA LTO branch office undertake different measures to upgrade the effectiveness and efficiency of or the performance of income tax audit in particular and other taxes audit in general. The branch has implemented improvements that work for the efficient tax audit functions, including technological improvements. But as it is understood from analyzing the research findings that there are problems in the income tax audit function of the LTO branch office that affect the performance of income tax audit.
The major weaknesses/gaps that affect the effectiveness of the performance of income tax audit functions are:
The legal framework that defines the taxpayers’ record-keeping obligations is not sufficiently comprehensive and does not assist for the smooth audit work and to fulfill the required collection of tax. Due to this there is a problem of evidence that supports specific parts of the tax calculation to determine the actual tax liability within the audit process. Moreover, this lead to the law level of taxpayer voluntary compliance.
There is insufficient resource allocation to the audit staff of the branch office. Since resources (both human and material resources) are the determinant factors for the efficiency of tax audit, scarcity of resource impede the proper functioning of the tax audit system. As a result, it leads to the low level of performance of tax audit in balancing the ‘coverage’, ‘quality’ and overall ‘deterrent considerations’ of tax audit.
Because of low level of the administration’s follow up and management of the auditors’ work, the audit is conducted in a way that lacks accuracy, efficiency, fairness, objectivity, transparency, completeness, consistency, and defensibility. This results to the existence of corruption, lack of integrity and ethics within the tax auditors, which consecutively diminishes the efficiency
Effective planning, program evaluation and monitoring of audit program are important inputs to both effective and efficient audit function as well as tax administration. However, the organization lacks well established plan and effective program evaluation and monitoring of the audit program.
Some of the problems mentioned above have negative influence on the performance of audit department in the branch. To solve such problems that inhibit the performance of auditing, the branch performed different activities such as it started to allocate the reasonable amount of resources to the audit department and its staff, the branch hire professional employees in which most of them have the educational background of accounting, establish strong legal background by issuing proclamations and regulations which give more power to auditors to access tax payers’ financial records, introducing modernized ways of performance measurement such as BSC and Result oriented performance appraisal, using modern technologies that are introduced by the authority to undertake auditing activities, perform auditing based on risk management process and intelligence information collection mechanisms, and etc.
Even though the branch office undertake different mechanisms to enhance the audit performance of the branch; the findings that are found during the auditing process are not as expected in which the tax which is generated from the economy is not collected in an effective and efficient manner. Furthermore, the audit program performed in the branch office could detect noncompliance behavior of individual taxpayers, and used as a compliance enforcement tool to collect unpaid or evaded tax return and to ensure the deterrent effect. Through audit, the branch utilizes its enforcement powers in addressing tax revenue in arrears and evasion challenges, and makes its power visible to the community to encourage noncompliant taxpayers to comply. However, tax audit practice in the branch is an infant tool in improving voluntary compliance through helping taxpayers to understand their tax and customs obligations that could generate the right tax revenue at the right time.
4.2 Recommendations
This section provides some recommendations that are suggested as a solution to mitigate the operational problems of tax audit program that reduce performance so that to improve voluntary compliance and to meet the revenue needs of the government of Ethiopia in general and the requirement of the branch in particular. Therefore, the study has tried to provide briefly the following recommendations:
ERCA should adjust the period of auditing according to the complexity of the case to be audited instead of fixing the audit period by 22 days. That is, fixing the audit period by 22 days may limit the performance of auditing department to achieve its objectives and goals by restricting the number of days since they don’t scrutinize the complex financial transactions and records which may hide the necessary tax that must be collected.
ERCA should assign the right people at the right place. This is when auditors are recruited they should have the educational background of accounting and finance to perform better in tax audit. In addition to this the authority should give sufficient remuneration to its employees to reduce corruption and other mal practices that affect the audit performance the sector. The performance measurement and evaluation of employees as well as their development and training should be takes placed fairly without partiality by focusing on merit and experience.
To achieve better performance the authority and the branch should have selected auditing units based on risk assessment mechanisms and with fair and free criteria. In this case tax payers which are more risky and which have more turn over should be selected for audit scrutiny.
The audit department in the branch should improve compliance by creating psychological or behavior change in the mind of tax payers. In this case non compliant tax payers fear the tax audit department if it is strong and perform its activities based on the rules and the regulations.

References
Alemu, Hilina and Addisu Deresse 2009, „Forty shops shut down for VAT violations‟, Addis Fortune, Ethiopia, available at, , accessed on December 5, 2013.
Barreca, D and S. Ramachandran 2004, „Improving tax administration with data mining‟, Executive Report, TCWP-0504, Elite Analytics, LLC
Baurer, Lewis I. 2005, „Tax Administrations and Small and Medium Enterprises in Developing Countries‟, Small and Medium Enterprise Department, World Bank
Berhan, B A and G P. Jenkins 2005, „The high costs of controlling GST and VAT evasion‟, Vol. 53, no 3, available at http://mail.ctf.ca/PDF/05ctj/05ctj3-berhan.pdf, accessed on June 2010.
Biber, E 2010, „Revenue Administration: Taxpayer Audit Development of Effective Plans‟, Technical Notes and Manuals, IMF, Fiscal Affairs Department
Bright, Joseph C., Joseph B. Kadane, Daniel S. Nagin 1988, „Statistical Sampling in Tax Audits‟, Law and Social Inquiry, Vol. 13, No. 2, pp. 305-333, Blackwell Publishing on behalf of the American Bar Foundation
Collins, Julie H. and R. David Plumlee 1991, „The Taxpayer 's Labor and Reporting Decision: The Effect of Audit Schemes‟, The Accounting Review, Vol. 66, No. 3,
Ebrill, L, M Keen, J Bodin and V Summers 2001, The Modern VAT, IMF, Washington DC. ERCA 2010, „Tax and post clearance audit policy and strategy‟, tax audit directorate
FDRE 2008, „Ethiopian Revenue and Customs Authority Establishment Proclamation No 587/2008‟, Federal Negarit Gazeta, 14th year No 44, Addis Ababa 14th July 2008, Ethiopia
Grandcolas, C 2005, „Management of the VAT: Improving the Level of Compliance using Performance Indicators, Lessons for the Pacific Islands Countries‟, 15th Tax Conference, 17-20 October 2005, Tokyo, Japan, available at, , accessed on November 2013.
Gupta, M and V. Nagadevara undated, „Audit Selection Strategy for Improving Tax Compliance: Application of Data Mining Techniques‟, available at, < http://www.csi-sigegov.org/1/39_354.pdf>, accessed on June 2010.
Harrison, G and R. Krelove 2005, „VAT refunds: A review of country experience‟, IMF Working Paper No. 05/218, IMF, Washington DC, available at , accessed on December 2013.
Hellenrstein 2005, „The Value Added Tax Experiences and Issues‟, A Paper for the International Tax Dialogue Conference on the VAT, March 15–16, 2005, Rome, available at, , accessed on December 2013.
Keen, M and S. Smith 2007, „VAT Fraud and Evasion: What Do We Know, and What Can be Done?‟, IMF working paper No. WP/07/31, IMF, UK
OECD 2006a, „Strengthening Tax Audit Capabilities: General Principles and Approaches‟, Information note, October 2006, Tax Administration Compliance Sub-group
Pashev, K 2006, „Fighting VAT Fraud: The Bulgarian Experience‟, MPRA Paper No. 998, WP 0606/2 En, posted 07 November 2007, available at, , accessed on d December 2013.
Rhoades, Shelley C. 1999, „The Impact of Multiple Component Reporting on Tax Compliance and Audit Strategies‟, The Accounting Review, Vol. 74, No. 1, pp. 63-85, American Accounting Association
Tadros, F 2009, „Introducing the Value-Added Tax: Considerations for implementation‟, In practice Business Taxation Notes, No.4.
Tait, A.A. 1988, Value Added Tax: International Practice and Problems, IMF, Washington DC.
Thomson, R 2008, „Strengthening Risk Management and Audit Strategies to Improve Compliance‟, Paper presented at Caribbean Organization of Tax Administration (COTA) General Assembly, July 2008, CARTAC, Belize

References: Alemu, Hilina and Addisu Deresse 2009, „Forty shops shut down for VAT violations‟, Addis Fortune, Ethiopia, available at, , accessed on December 5, 2013. Hellenrstein 2005, „The Value Added Tax Experiences and Issues‟, A Paper for the International Tax Dialogue Conference on the VAT, March 15–16, 2005, Rome, available at, , accessed on December 2013. Tait, A.A. 1988, Value Added Tax: International Practice and Problems, IMF, Washington DC.