Lagos State Internal Revenue Service Unveils New Tax Recovery Powers
The Lagos State Internal Revenue Service (LIRS) has announced a significant expansion of its enforcement capabilities, revealing plans to recover outstanding tax liabilities through third-party intermediaries. This development marks a substantial shift in tax collection strategy for Nigeria's commercial capital.
Legal Framework for Enhanced Tax Collection
According to a recent public notice issued by the agency, this new enforcement approach is authorized under Section 60 of the Nigeria Tax Administration Act, 2025 (NTAA 2025). The legislation grants LIRS what it terms the "legal power of substitution," enabling the revenue service to target funds held by various entities on behalf of defaulting taxpayers.
The NTAA 2025 specifically 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 official notice stated.
Comprehensive Third-Party Recovery Mechanism
LIRS has identified multiple categories of third parties that may be directed to remit funds on behalf of tax defaulters:
- Banks and other financial institutions
- Employers and business partners
- Tenants and property managers
- Debtors and customers
- Agents and representatives
The agency emphasized that this "Power of Substitution" represents a lawful collection mechanism designed to ensure efficient recovery of various tax types, including:
- Personal Income Tax (PIT)
- Capital Gains Tax (CGT)
- Stamp Duties
- Withholding Tax (WHT)
Operational Procedures and Requirements
Once LIRS issues a substitution notice, recipients face specific legal obligations. Financial institutions must immediately remit specified amounts through the LIRS e-Tax platform and provide confirmation of compliance. Banks are additionally required to report taxpayers' available balances and any existing encumbrances upon request.
Other affected parties, including employers and tenants, must withhold specified sums from funds due to defaulting taxpayers and remit them within designated timeframes. The notice clarifies that entities not holding or owing money to taxpayers must provide written notification to LIRS within stipulated periods.
Appeal Process and Taxpayer Responsibilities
While implementing these enhanced collection measures, LIRS has established procedural safeguards. Recipients of substitution notices may file written objections to assessments within 30 days of receiving notifications, following established appeal provisions under the law.
The revenue service stressed that despite third-party recovery mechanisms, defaulting taxpayers retain ultimate responsibility for any unpaid balances not recovered through substitution processes. The agency strongly urged taxpayers to settle outstanding assessments promptly to avoid escalating penalties and enforcement actions.
Consequences of Non-Compliance
LIRS issued clear warnings regarding potential consequences for failing to comply with substitution directives:
- Liability equal to the tax amount specified in notices
- Additional penalties and interest charges
- Further enforcement actions including distraint procedures
- Possible criminal prosecution under the Act
The tax liability is considered paid to the extent of remittances made pursuant to substitution notices, creating significant incentives for third-party compliance with LIRS directives.
This comprehensive enforcement framework represents Lagos State's latest effort to strengthen revenue collection and ensure tax compliance across Nigeria's most populous commercial center.
