The Lagos State government has announced plans to enforce its statutory powers to recover unpaid taxes directly from banks, employers, tenants, business partners and other third parties connected to defaulting taxpayers.
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This followed a Public Notice issued by the Lagos State Internal Revenue Service (LIRS) with reference number LIRS/003/01/2026, in which the agency declared its intention to apply the Power of Substitution as provided under Section 60 of the Nigeria Tax Administration Act (NTAA) 2025.
In the notice, LIRS informed the public, particularly employers, financial institutions, business operators and tax agents, that it is empowered by law to direct any person holding money on behalf of a taxpayer, or owing money to a taxpayer, to remit such funds directly to the Service in settlement of outstanding tax liabilities.
According to LIRS, the provision applies where a taxpayer “fails, neglects or refuses” to pay an established and final tax liability when due.
The Service explained that the Power of Substitution is a lawful tax recovery mechanism designed to ensure efficient collection of unpaid taxes, including Personal Income Tax (PIT), Capital Gains Tax (CGT), Stamp Duties and Withholding Tax (WHT) administered by the agency.
Under the Act, LIRS may issue substitution notices to: Banks and other financial institutions, Employers, Tenants, debtors or customers of the taxpayer.
Once such a notice is served, the recipient is legally required to remit the specified amount to LIRS from funds belonging to, or payable to, the defaulting taxpayer.
The tax liability is deemed settled to the extent of the remittance made, while failure to comply constitutes an offence under the Act.
Specifically, banks and financial institutions are mandated, upon receipt of a substitution notice, to remit the stated amount without delay and confirm compliance through the LIRS e-Tax platform at www.etax.lirs.net. They are also required to disclose the taxpayer’s available balances and any encumbrances when requested.
LIRS noted that the policy is intended to strengthen tax compliance and close loopholes that enable persistent defaults, adding that the measure aligns with global best practices in revenue administration.
Analysts say the notice effectively clarifies that LIRS can legally instruct third parties to pay a taxpayer’s outstanding obligations directly to the government without first going through the taxpayer, provided the liability is final and established.
However, the move has generated debate among legal and policy experts, with some expressing concerns over the wide discretionary powers granted to tax authorities.
One analyst warned that allowing substitution without a court order “is a recipe for disaster”, arguing that such powers could be misused if not properly checked.
“Unchecked, this could lead to abuse, where individuals or businesses are targeted for political or personal reasons. There must be safeguards, including judicial oversight, to prevent this from becoming a tool for vendetta,” the analyst said.
They added that while efficient tax collection is vital, the process must be balanced with due process, transparency and protection of taxpayers’ rights.
The Public Notice was issued from the Lagos Revenue House on Assbifi Road, Central Business District, Ikeja, reinforcing the state government’s resolve to boost revenue generation and curb tax evasion through stricter enforcement mechanisms.
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