The Lagos State Internal Revenue Service (LIRS), has announced a new enforcement strategy aimed at tackling persistent tax default and boosting revenue collection in Africa’s largest commercial hub. The agency said it will begin exercising its statutory powers to recover outstanding tax liabilities from defaulting taxpayers by directing third parties holding or owing money to those taxpayers to remit funds to the tax authority.
This initiative, outlined in a public notice dated January 21, 2026, was officially published on the LIRS website and signed by the Executive Chairman, Mr. Ayodele Subair. It marks a proactive use of legal authority under the Nigeria Tax Administration Act, 2025 (NTAA 2025), to ensure effective tax enforcement.
Legal Basis: The Power of Substitution
Under Section 60 of the NTAA 2025, tax authorities—including LIRS—are empowered to issue “substitution notices”. This mechanism allows the agency to instruct any person or entity holding money on behalf of, or owing money to, a taxpayer who has failed to clear his or her final tax liability, to remit those funds directly to LIRS to settle the unpaid taxes.
The law aims to curb tax evasion and improve compliance by widening the net of enforcement beyond the defaulter’s personal accounts, enabling efficient recovery of revenues owed to the state.
Who Can Be Directed to Pay?
LIRS’s notice clarifies the broad range of parties that may receive substitution directives, including:
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Banks and financial institutions holding funds in accounts of defaulting taxpayers.
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Employers and payroll agents who have wages or salaries due to employees.
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Tenants, debtors, or customers who owe money to a taxpayer.
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Agents, business partners, or associates with financial obligations linked to the defaulting taxpayer.
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Any person or business owing money to the taxpayer, whether currently due or accruing.
Once served with a substitution notice, such parties are statutorily required to remit the specified amount from funds belonging to, or payable to, the taxpayer directly to the Lagos tax authority.
Types of Taxes Covered
The power of substitution applies to several tax categories administered by LIRS, including:
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Personal Income Tax (PIT)
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Capital Gains Tax (CGT)
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Stamp Duty
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Withholding Tax (WHT)
These are among the key revenue streams for Lagos State government operations.
How It Will Work in Practice
According to the public notice:
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Substitution Notice Issued: LIRS issues a formal directive to an institution or person holding or owing funds to the non-compliant taxpayer.
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Remittance to LIRS: The recipient must remit the specified amount to LIRS from the taxpayer’s funds.
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Confirmation of Compliance: Banks and financial institutions must confirm compliance through the LIRS e-Tax platform and may be asked to provide information on account balances and encumbrances.
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Withhold and Pay: Employers, tenants, and other parties must withhold amounts owed to the taxpayer and remit them to LIRS within the timeframe specified.
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Notification for Non-Holders: If a recipient has no money or obligations to the taxpayer, they must inform LIRS in writing within the stipulated period.
This framework is designed to expedite the collection process and reduce opportunities for tax revenue leakage.
Rights and Obligations
The notice also outlines procedural safeguards and obligations:
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Affected parties may object in writing to an assessment within 30 days of receiving a substitution notice, in line with appeal provisions under the tax law.
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Taxpayers remain liable for any part of the tax debt not recovered through the substitution process and are urged to settle outstanding assessments promptly.
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Failure to comply with substitution directives constitutes an offence under the NTAA 2025 and may attract penalties, interest, enforcement action (such as distraint), and possible prosecution.
Implications for Tax Compliance
This enforcement approach signals a shift toward more assertive tax administration in Lagos—Nigeria’s economic powerhouse. By tapping into funds held by third parties with financial ties to defaulters, LIRS is seeking to close gaps that have historically enabled tax avoidance.
For individuals and businesses, the move underscores the importance of maintaining up-to-date compliance with tax filings and payments. For banks, employers, and commercial entities, it introduces additional responsibilities regarding tax remittance and reporting.
Conclusion
Lagos State’s decision to leverage the power of substitution represents a robust legal and administrative effort to strengthen tax collection and reduce revenue shortfalls.
By empowering LIRS to engage third parties such as banks and business partners in the enforcement process, the state aims to ensure that taxes due are collected efficiently and lawfully, while encouraging broader compliance across the economy.
