The Lagos Internal Revenue Service (LIRS) has announced its intention to robustly enforce the recovery of outstanding tax liabilities from defaulting taxpayers, leveraging the 'Power of Substitution' as outlined in Section 60 of the Nigeria Tax Administration Act, 2025 (NTAA 2025). This pivotal move, which took effect on January 1, 2026, grants LIRS the legal authority to direct third parties to remit funds on behalf of taxpayers who have failed to settle their established tax obligations.

According to recent notices issued by LIRS, the agency can compel various entities to pay the outstanding tax amount owed by a defaulting taxpayer. These third parties include banks and other financial institutions, employers, tenants, debtors, customers of the taxpayer, agents, business partners, and any person holding money on behalf of, or owing money to, the taxpayer, whether the debt is presently due or still accruing.

The Power of Substitution is a lawful collection mechanism designed to enhance the efficient recovery of unpaid taxes. It specifically covers Personal Income Tax (PIT), Capital Gains Tax (CGT), Stamp Duties, and Withholding Tax (WHT) administered by LIRS. The agency emphasized that this initiative aims to clarify the circumstances, procedures, and obligations involved in exercising this statutory power.

Upon the issuance of a substitution notice, the recipient is legally mandated to remit the specified amount to LIRS from funds belonging to, or payable to, the defaulting taxpayer. For banks and other financial institutions, this means remitting the stated amount to LIRS without delay and providing confirmation of compliance through the LIRS e-Tax platform. Banks are also required to report the taxpayer’s available balances and any encumbrances as requested by the service.

Similarly, employers, agents, tenants, and other affected parties must withhold the specified sums from funds due to the taxpayer and remit them within the timeframe stipulated in the notice. Should a person not hold or owe money to the taxpayer, they are required to notify LIRS in writing within the stipulated period. Taxpayers, upon receipt of a substitution notice, retain the right to file a written objection to an assessment within 30 days, in line with the appeal provisions of the law.

LIRS cautioned that failure to comply with a substitution directive constitutes an offense under the NTAA 2025. Non-compliance can lead to severe consequences, including liability equal to the tax amount specified in the notice, additional penalties and interest, further enforcement actions such as distraint, and potential prosecution. While enforcement actions may be carried out through substitution, defaulting taxpayers remain ultimately responsible for any unpaid balance not recovered through this process.

It is important to note that the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, had previously ruled out claims that the government would directly debit personal accounts for tax remittances, though the LIRS directives focus on accounts tied to outstanding tax liabilities of employers and other defaulting taxpayers.

The LIRS has urged all taxpayers to promptly settle their outstanding assessments to avoid incurring penalties and facing the stringent enforcement actions facilitated by the Power of Substitution.