ASSESSMENT OF THE IMPACTS OF TAX AUDIT AND INVESTIGATION ON BUSINESSES TAX COMPLIANCE IN TANZANIA

Abstract

The study explored the impact of tax audits and investigations on the tax compliance behavior of businesses in Moshi Municipality. Specifically aims to explore how audit techniques, tax investigations, and audit selection methodologies influence tax compliance among businesses. Tax compliance is critical for generating the revenue needed for government services and development, but tax evasion remains a persistent challenge, particularly among businesses. This study adopted a mixed-method approach incorporating both quantitative and qualitative data collection techniques. Surveys were administered to business owners and tax officials in Moshi Municipality while interviews and secondary data provided deeper insights into the impact of tax auditing and investigations. Key areas of focus included innovative audit techniques, such as data analytics, the role of tax investigations in reducing tax evasion, and how audit selection processes (random vs. risk-based) affect taxpayer behavior. The findings revealed that innovative audit techniques such as automated auditing tools and data analytics significantly enhance tax compliance by increasing transparency and reducing underreporting. Taxpayers are more likely to comply with tax laws when they know that advanced tools were used to detect inaccuracies. Furthermore, tax investigations play a crucial role in detecting non-compliance and serve as a deterrent against tax evasion. Businesses that face the possibility of tax investigations are more inclined to comply with tax regulations to avoid penalties. Additionally, the study found that audit selection methodologies affect compliance behavior. Risk-based audits that target high-risk businesses were shown to have a greater effect on promoting compliance compared to random audits. However, random audits contribute by creating a sense of unpredictability, thus encouraging compliance. Based on the findings, the study concludes that a combination of innovative audit techniques, robust tax investigations, and a balanced audit selection process is essential for improving tax compliance among businesses in Moshi Municipality. Recommendations are provided for tax authorities to enhance the use of modern auditing technologies, increase the frequency of tax investigations and adopt a hybrid approach to audit selection for optimal results.