Lagos to Recover Unpaid Taxes Through Tenants, Banks, Debtors, Others
- The Lagos State Government intensifies tax recovery by targeting third parties, including banks and employers
- LIRS invokes 'Power of Substitution' for efficient tax recovery from defaulters and their connections
- Taxpayers urged to settle outstanding liabilities to avoid penalties and further enforcement actions
The Lagos State Government is stepping up enforcement against tax defaulters, announcing plans to recover unpaid taxes directly through third parties including banks, employers, tenants, debtors and business partners.
In a public notice, the Lagos State Internal Revenue Service (LIRS) said it will invoke its statutory “Power of Substitution” to compel recovery of established tax liabilities from individuals and organisations connected to defaulting taxpayers.
Source: UGC
The move, LIRS explained, is backed by Section 60 of the Nigeria Tax Administration Act, 2025 (NTAA 2025), which empowers tax authorities to intercept funds belonging to or owed to taxpayers who fail to settle confirmed tax assessments when due.
Legal backing for aggressive tax recovery
According to LIRS, the Power of Substitution allows the agency to direct any person holding money on behalf of a taxpayer, or owing money to that taxpayer, to remit such funds directly to the tax authority.
“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.
The mechanism applies to taxes administered by LIRS, including Personal Income Tax, Capital Gains Tax, Stamp Duties and Withholding Tax.
Who can be targeted under substitution
LIRS clarified that substitution notices may be issued to a wide range of third parties. These include banks, employers, customers, agents, tenants, business partners and anyone holding funds belonging to a defaulting taxpayer.
The agency added that it can also recover funds from individuals or organisations that owe money to the taxpayer, whether the debt is immediately due or still accruing.
Once a substitution notice is served, the recipient is legally required to remit the stated amount to LIRS from funds belonging to or payable to the taxpayer.
“The tax liability is deemed paid to the extent of the remittance made pursuant to the substitution. Failure to comply with such a directive constitutes an offence under the Act,” LIRS warned.
Banks ordered to comply without delay
Under the directive, all banks and financial institutions that receive substitution notices are required to remit the specified amounts to LIRS immediately and confirm compliance through the LIRS e-Tax platform.
Banks may also be asked to disclose available balances and any encumbrances on the taxpayer’s accounts.
Employers, agents, tenants and other affected parties are similarly instructed to withhold the specified sums from payments due to the taxpayer and remit them within the timeframe stated in the notice.
Where a recipient does not hold or owe any funds to the taxpayer, LIRS said they must notify the agency in writing within the stipulated period.
Objections, penalties and final warning
LIRS noted that recipients of substitution notices have the right to file a written objection to the underlying tax assessment within 30 days, in line with the appeal provisions of the law.
However, the agency stressed that enforcement through substitution does not extinguish the taxpayer’s full liability. Any unpaid balance not recovered remains the responsibility of the defaulting taxpayer.
Failure to comply with substitution directives, LIRS warned, could result in liability equal to the tax amount specified, additional penalties and interest, further enforcement actions including distraint, and possible prosecution.
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The service urged taxpayers with outstanding assessments to regularise their tax positions promptly to avoid escalating enforcement measures.
How FG plans to Use banks to recover tax debt in 2026
Legit.ng earlier reported that Nigeria’s tax framework is tightening as the government looks to boost revenue and reduce leakages.
At the centre of the renewed enforcement drive is a clearer definition of what qualifies as tax debt, how it can be recovered, and the expanding role of technology in tracking liabilities.
With ambitious revenue targets set for 2026, taxpayers are under closer scrutiny than ever before.
Source: Legit.ng
