Tax Compliance Behaviour and the Effectiveness of Tax Audit in Revenue Generation

This study examined the effect of tax audits on tax compliance behaviour and revenue generation among Small and Medium Enterprises (SMEs) in Agbeni Market, Ibadan North-West Local Government Area. A descriptive survey research design with explanatory elements was adopted. The study covered 50 SMEs selected through stratified random sampling, while data were collected using a structured questionnaire and analysed using descriptive and inferential statistics. The findings revealed that limited knowledge of tax obligations (mean = 3.90) and complex tax laws (mean = 3.80) were major barriers to tax compliance. Pearson correlation analysis showed a strong and significant positive relationship between tax audit effectiveness and SME tax compliance (r = 0.68, p < 0.01). Regression analysis further revealed that tax audit effectiveness significantly influenced revenue generation (β = 0.72, p < 0.01), explaining 52% of the variation in revenue generation (R² = 0.52). The study concludes that effective, fair, proactive, and educational tax audits significantly improve SME tax compliance and revenue mobilization. The study recommends the adoption of risk-based and technology-supported audit systems, alongside simplified tax procedures and continuous taxpayer education, to promote voluntary compliance and sustainable revenue generation.