The Lagos State Internal Revenue Service (LIRS) has clarified that its authority to direct banks, employers, and other third parties to remit funds belonging to tax defaulters is not a new policy but a long-standing provision backed by law.
The clarification follows public reactions to a recent notice issued by the agency on the enforcement of its “power of substitution” under the Nigeria Tax Administration Act (NTAA), 2025.
Speaking on the matter, a senior official of the LIRS explained that the mechanism is only applied when a taxpayer has an established and final tax liability and has failed to comply despite due process.
According to the agency, the law permits the tax authority to appoint third parties; such as banks, employers, tenants, customers, or business partners, as agents of government for the purpose of recovering unpaid taxes. This occurs when such third parties are in possession of funds belonging to, or are indebted to, a defaulting taxpayer.
The LIRS stressed that the process is not arbitrary and does not apply to individuals or businesses without proven tax liabilities. It noted that safeguards are embedded in the law to prevent abuse and ensure that enforcement only follows clear violations.
The agency also explained that the power of substitution is a globally recognised tax recovery mechanism and is not unique to Lagos State or Nigeria.
Under the NTAA 2025, once a substitution notice is served, the affected third party is legally required to remit the specified amount from the taxpayer’s funds to the LIRS within the stipulated timeframe. Failure to comply attracts penalties under the Act.
LIRS stated that the notice was issued to educate the public, particularly financial institutions, employers, and business operators, on their obligations under the new tax administration framework.
The agency reaffirmed its commitment to lawful, transparent, and fair tax enforcement, urging taxpayers to fulfil their obligations promptly to avoid enforcement actions.
