The Lagos State Internal Revenue Service (LIRS) has announced plans to intensify the recovery of outstanding tax liabilities from defaulting taxpayers by invoking its statutory power to collect such debts through third parties, including banks, employers, tenants, debtors, agents, and business partners. The move signals a more assertive enforcement posture by the state tax authority as it seeks to improve compliance and strengthen internally generated revenue.
The agency disclosed this in a recent public notice, explaining that the action is grounded in Section 60 of the Nigeria Tax Administration Act, 2025 (NTAA 2025), which grants tax authorities the legal power of substitution. Under this provision, LIRS is empowered to require third parties who hold funds on behalf of, or owe money to, a taxpayer with an established but unpaid tax liability to remit such funds directly to the Service.
“The NTAA 2025 empowers the Lagos State Internal Revenue Service to direct any person holding money on behalf of, or owing money to, a taxpayer who has failed to pay an established final tax liability when due, to remit such money to the Service in settlement or partial settlement of the outstanding tax,” the notice stated.
According to LIRS, the power of substitution is a lawful and well-established tax collection mechanism designed to ensure the efficient recovery of unpaid taxes. The agency clarified that the measure applies to taxes administered by LIRS, including Personal Income Tax (PIT), Capital Gains Tax (CGT), Stamp Duties, and Withholding Tax (WHT).
The Service explained that the notice was issued to provide clarity on the circumstances under which the power may be exercised, the procedures involved, and the obligations of affected parties. It noted that where a taxpayer fails, neglects, or refuses to settle an established and final tax liability when due, LIRS may lawfully step in and redirect funds belonging to that taxpayer through third parties.
Under the substitution framework, LIRS may issue a formal notice to any person or entity holding funds on behalf of the taxpayer or owing money to the taxpayer. This category includes banks and other financial institutions, employers, tenants, customers, agents, contractors, and business partners. The authority of substitution also extends to funds that are not immediately payable but are accruing or expected to become due to the taxpayer.
LIRS emphasised that once a substitution notice is issued, the recipient is under a legal obligation to comply by remitting the amount specified in the notice from funds belonging to or payable to the defaulting taxpayer.
“The tax liability is deemed paid to the extent of the remittance made pursuant to the substitution. Failure to comply with such directive constitutes an offence under the Act,” the agency warned.
The Service provided specific guidance for financial institutions, stating that all banks and other regulated financial bodies are required to remit the stated amount to LIRS without delay once a substitution notice is served. Banks are also expected to confirm compliance through the LIRS e-Tax platform and provide additional information where requested.
“Banks are also required to report the taxpayer’s available balances and any encumbrances as may be requested,” the notice added, underscoring the obligation of financial institutions to cooperate fully with the tax authority.
Beyond banks, LIRS also directed employers, tenants, agents, and other affected parties to withhold the specified sums from funds due to the taxpayer and remit them to the Service within the timeframe stated in the notice. The agency clarified that where a recipient of a substitution notice does not hold or owe any money to the taxpayer, such a person or entity must formally notify LIRS in writing within the stipulated period.
The Service further explained that the law provides safeguards for taxpayers and affected third parties. Recipients of substitution notices retain the right to challenge a tax assessment by filing a written objection within 30 days of receiving the notice, in accordance with the appeal provisions of the NTAA 2025.
While highlighting the enforcement powers available to it, LIRS stressed that substitution is only one of several tools provided under the law to ensure tax compliance. The agency noted that even where substitution is applied, defaulting taxpayers remain fully responsible for any outstanding balance not recovered through the process.
LIRS urged taxpayers to take proactive steps to regularise their tax affairs, warning that failure to comply with substitution directives could attract serious consequences. These include liability equal to the tax amount specified in the notice, additional penalties and interest, further enforcement actions such as distraint of property, and possible criminal prosecution.
The agency described the new enforcement drive as part of broader efforts to promote voluntary compliance, fairness, and accountability within the tax system. It reiterated that taxes collected are critical to funding public infrastructure, social services, and development programmes across Lagos State.
By invoking the power of substitution more rigorously, LIRS said it aims to close compliance gaps, discourage tax evasion, and ensure that all eligible taxpayers contribute their fair share to the state’s revenue base. The Service encouraged taxpayers with outstanding assessments to engage with it promptly to resolve issues amicably and avoid enforcement actions.
The notice concludes with a reminder that the era of lax enforcement is over, and that compliance with tax obligations under the NTAA 2025 is mandatory, not optional, for individuals and businesses operating within Lagos State.
