Risk-based tax audit: Evidence on relevance, effectiveness, and efficiency

Abstract

Tax auditing in the public sector plays a crucial role in enhancing the transparency and accountability of tax authorities through tax administration based on taxpayer risk assessment. Tax data are typically large-scale and complex, making traditional inspection, investigation, and auditing activities less effective in preventing or mitigating tax fraud. The adoption of a risk-based tax inspection and audit approach is considered an optimal solution, aligning with the global trend of shifting from coercive enforcement toward encouraging voluntary tax compliance. The objective of this study is to evaluate the appropriateness, effectiveness, and efficiency of tax authorities’ risk-based tax inspection practices. The research data comprise tax inspection and audit results from 2022 to 2024, along with audit reports issued by the State Audit Office (SAV). The analytical strategy employed in this study is inductive analysis combined with triangulation validation. The research findings indicate that the selection of taxpayers for audit based on tax authorities’ risk assessments does not adequately align with the actual risks posed by taxpayers. Furthermore, the effectiveness of tax authority inspections remains insufficient, and the overall efficiency is low. These results highlight the need for a comprehensive tax risk assessment system reform. Such reform should involve integrating cross-sectoral and multidimensional data, reducing the reliance on annual quotas to select taxpayers for inspection, and establishing independent feedback audit mechanisms. Together, these measures would significantly enhance the appropriateness, effectiveness, and efficiency of tax administration activities, thereby ensuring greater transparency and fairness within the tax system. This study offers critical insights that can support policymakers in enhancing risk-based tax audit frameworks, thereby strengthening tax governance and contributing to the sustainable development of public financial management.