New tax law empowers Lagos to recover unpaid taxes through banks, employers, debtors, and tenant - LIRS

The Lagos State Internal Revenue Service (LIRS) has said it will begin enforcing the recovery of outstanding tax liabilities from defaulting taxpayers through third parties, including banks, employers, tenants, debtors, and business partners.

The agency made this known in a public notice issued recently, stating that the action is in accordance with Section 60 of the Nigeria Tax Administration Act, 2025 (NTAA 2025), which grants LIRS the legal power of substitution.

“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.

According to LIRS, “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.”

The agency said the notice was issued to clarify the circumstances, procedures, and obligations involved in exercising the statutory power. It explained that where a taxpayer fails, neglects, or refuses to settle an established tax liability when due, LIRS may direct any person holding funds on behalf of the taxpayer, or owing money to the taxpayer, to remit such funds to the service.

This includes customers, agents, tenants, employers, and any other persons or entities in possession of the taxpayer’s funds. LIRS added that the power also extends to funds owed to the taxpayer, whether the debt is immediately payable or still accruing.

The service stated that once a substitution notice is issued, the recipient is legally required to remit the amount specified in the notice from funds belonging to or payable to the defaulting taxpayer.

“The tax liability is deemed paid to the extent of the remittance made pursuant to the substitution. Failure to comply with such directive constitutes an offence under the Act,” LIRS said.

It further explained that upon receipt of a substitution notice, 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.

“Banks are also required to report the taxpayer’s available balances and any encumbrances as may be requested,” the service said.

LIRS also directed employers, agents, tenants, and other affected parties to withhold the specified sums from funds due to the taxpayer and remit them within the timeframe stated in the notice. It clarified that any person who does not hold or owe money to the taxpayer must notify the agency in writing within the stipulated period.

The notice added that recipients of substitution notices may file a written objection to an assessment within 30 days of receiving the notice, in line with the appeal provisions of the law.

While stressing that enforcement actions may be carried out through substitution, LIRS said defaulting taxpayers remain responsible for any unpaid balance not recovered through the process. The agency urged taxpayers to settle outstanding assessments promptly to avoid penalties.

LIRS warned that failure to comply with substitution directives could result in liability equal to the tax amount specified in the notice, additional penalties and interest, further enforcement actions including distraint, and possible prosecution.