Role of tax audits in enhancing tax compliance: evidence from Ogun State

Abstract

Purpose: Tax compliance is one of the significant factors militating against sustainable revenue mobilization in developing economies, including the Nigerian economy. This work therefore evaluates the impact of tax audits on improving tax compliance in Ogun State, taking a critical focus on the frequency, penalty, effectiveness, and moderating effect of taxpayer education.

Methodology: The study adopts a quantitative cross-sectional research design. Primary data were collected through structured questionnaires administered to officials of the Ogun State Internal Revenue Service and professional accountants of selected small and medium-sized enterprises. A stratified random sampling technique was used; 331 valid responses were retrieved. Data was analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS to test both direct and moderating relationships among the variables.

Results and conclusion: Results reveal that tax audits greatly improve tax compliance in Ogun State. Frequency of tax audit is identified as the most significant predictor of tax compliance, followed by effectiveness and penalty of tax audit. However, it was found that taxpayer education positively affects tax compliance and also moderates tax audit effectiveness & tax compliance. It can be concluded that the role of effective and regular taxation audits, in conjunction with sufficient taxpayer education, is imperative in ensuring and improving the levels of voluntary taxation compliance.

Implication of findings: The findings suggest that the Nigeria taxation system can benefit from enhancing the capacity for taxation audits and increasing the focus and activities on taxpayer education as approaches for improving the levels of voluntary taxation compliance.