Tax audit on tax revenue of SMEs in Nigeria

Abstract

Government expenditure is crucial to the macroeconomic income determination model and taxes constitute a major source of revenue for the government. However, low tax compliance jeopardises the government’s capacity to realise its tax revenue potential. Consequently, tax audits are critical to enhancing tax compliance, which then helps to boost tax revenue. Although some empirical studies have examined the relationship between tax compliance and tax revenue scarcely any has investigated the influence of tax audit on tax compliance. To this end, this study sought to examine the influence of tax audits on tax compliance: and tax revenues from SMEs in Nigeria: the study employed a cross-sectional survey design consisting of 205 Owners and managers of SMEs in Nigeria. Convergent and divergent validity and composite reliability tests served as validity and reliability tests of the structured questionnaire designed by the authors. The study used a structured questionnaire to elicit the desired data from the respondents and used structural equation modelling to analyse the data. The results indicate that desk and field tax audits have a significant positive influence on tax compliance. Tax compliance, desk and field tax audits have a significant positive influence on tax revenue. In addition, tax compliance provides a partial linkage for the relationship between tax audits and tax revenues from SMEs. The study contributes significantly to accounting theory by showing that deterrence to tax evasion through tax audit is critical to tax compliance in Nigeria.