According to the Lagos State Internal Revenue Service (LIRS), it would use third parties like banks, employers, debtors, tenants, and business partners to collect unpaid taxes from non-compliant individuals. A recent public announcement from LIRS, this action complies with section 60 of the Nigeria Tax Administration Act, 2025 (NTAA 2025), which gives the agency the authority to substitute. “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 statement reads.
“The Power of Substitution is a lawful collection mechanism designed to ensure efficient recovery of unpaid taxes, including Personal Income Tax (PIT), Capital Gains Tax (CGT), Stamp Duties, and Withholding Tax (WHT) administered by LIRS. “This Public Notice clarifies the circumstances, procedure, and obligations associated with the exercise of this statutory power.
“Where a taxpayer fails, neglects, or refuses to settle any established outstanding tax liability when due, LIRS may exercise its power under section 60 to direct any of the following persons to pay the amount owed by the taxpayer.”
Customers of the taxpayer, agents, and anyone holding money on the taxpayer's behalf are examples of these people. According to the agency, it can also collect money from anyone who owes the taxpayer money, regardless of whether the obligation is past due or still growing.
According to LIRS, following the issuance of a substitution notice, the recipient is legally obligated to transfer the specified amount from funds that belong to or are receivable to the defaulting taxpayer to the service.
“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 offense under the Act,” LIRS said.
Upon receipt of a substitution notice, the service said all banks and other financial institutions are “required to remit the stated amount to LIRS without delay and provide confirmation of compliance through the LIRS e-Tax platform: www.etax.lirs.net.”
“Banks are also required to report the taxpayer’s available balances and any encumbrances as may be requested,” LIRS said.
Employers, agents, tenants, and other impacted parties were ordered by the service to withhold the designated amounts from funds owed to the taxpayer and submit them to LIRS within the time frame mentioned in the notice.
Additionally, LIRS made it clear that anyone who does not possess or owe money to the taxpayer must notify the tax agency in writing within the allotted time frame.
The notice further stated that, in accordance with the law's appeal procedures, beneficiaries may submit a written objection to an assessment within 30 days of receiving a substitute notice.
LIRS highlighted that defaulting taxpayers are still liable for any unpaid amount that is not collected and asked them to clear outstanding assessments as soon as possible to avoid penalties, even though enforcement may be carried out through substitution.
The agency cautioned that noncompliance with substitution directions could lead to further penalties and interest, enforcement actions such as distraint, responsibility equal to the stipulated tax amount, and potential prosecution.
