By Ghazali Ibrahim
The Lagos State Government has announced the activation of the Power of Substitution under the Nigeria Tax Administration Act (NTAA) 2025, empowering the Lagos State Internal Revenue Service (LIRS) to recover outstanding taxes directly from third parties linked to defaulting taxpayers.
In a public notice issued by LIRS and dated January 2026, the agency said the measure, backed by Section 60 of the NTAA 2025, allows it to direct any person or institution holding money on behalf of a taxpayer or owing such taxpayer to remit funds to the government in settlement of unpaid tax liabilities.
According to the notice, the policy applies where a taxpayer fails, neglects, or refuses to pay an established final tax liability when due. In such cases, LIRS may issue a substitution notice to banks and other financial institutions, employers, tenants, debtors, customers, business partners, agents, or any individual holding or owing money to the taxpayer, whether the funds are presently due or accruing.
LIRS explained that once a substitution notice is served, the recipient is legally required to remit the specified amount to the agency from funds belonging to, or payable to, the defaulting taxpayer. The tax liability is considered settled to the extent of the remittance made under the substitution.
The agency stressed that failure to comply with a substitution directive constitutes an offence under the Act.
As part of compliance requirements, banks and financial institutions are mandated to immediately remit the stated amount to LIRS upon receiving a notice and confirm compliance through the LIRS e-Tax platform. They may also be required to disclose a taxpayer’s available account balances and any existing encumbrances.
LIRS noted that the Power of Substitution is a lawful tax collection mechanism designed to enhance efficiency in recovering unpaid taxes, including Personal Income Tax, Capital Gains Tax, Stamp Duties and Withholding Tax administered by the agency.
The notice signals a tougher enforcement stance by the Lagos State Government as it intensifies efforts to improve tax compliance and boost internally generated revenue.
