Impact of auditing on vat compliance: a case study of small vat operators in Blantyre city of Malawi

Abstract

The perception of many tax professionals and other scholars is that VAT auditing has a positive effect on compliance of VAT operators and the study was carried to assess that belief. Quantitative data was collected from a sample of 353 respondents using probability sampling technique and 101 respondents responded positively representing a 29% response rate. The study established that religion, ethical behaviour, patriotism, morale, personal qualification, age, marital status, legality of business entities, business turnover and nature of business activities were some characteristics that affect VAT operators’ compliance. Furthermore, the outcome has also shown that there was a weak insignificant negative relationship between VAT compliance and audit and that only 1 % of VAT operator’s compliance is explained by VAT audits. In that case, the study informed that VAT audits do not make a substantial impact on VAT compliance in Malawi. Meaning that VAT compliance cannot in any way be affected by audit rates in Malawi and that audit productivity and effectiveness does not add much value to compliance and revenue. However, the study established tools and strategies that can be used to supplement the already existing ones to improve VAT. Therefore, in order to achieve high levels of compliance, it was recommended that Malawi Revenue Authority should combine audit with other enforcement tools such as civic education in order to stimulate compliance, engage government to devise tax policies that promote compliance and devise pragmatic, practical and effective operation plans that enhance the impact of VAT audits in order to consolidate VAT compliance and revenue.