Lagos State Government Ramps Up Tax Recovery Through Third-Party Enforcement
The Lagos State Government has announced a significant escalation in its efforts to recover unpaid taxes, implementing a comprehensive strategy that targets third parties connected to tax defaulters. This aggressive approach represents a major shift in tax enforcement methodology within Nigeria's commercial capital.
Legal Framework for Enhanced Tax Collection
The Lagos State Internal Revenue Service (LIRS) is invoking its statutory "Power of Substitution" under Section 60 of the Nigeria Tax Administration Act, 2025 (NTAA 2025). This legal provision empowers tax authorities to intercept funds belonging to or owed to taxpayers who have failed to settle confirmed tax assessments within stipulated deadlines.
"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 LIRS stated in an official public notice.
Comprehensive Third-Party Targeting Strategy
The substitution mechanism applies to multiple tax categories administered by LIRS, including:
- Personal Income Tax
- Capital Gains Tax
- Stamp Duties
- Withholding Tax
LIRS has clarified that substitution notices may be issued to a wide range of third parties, including:
- Banks and financial institutions
- Employers and corporate organizations
- Tenants and property managers
- Business partners and associates
- Customers and debtors
- Agents and representatives
Mandatory Compliance Requirements
Under the new enforcement directives, all banks and financial institutions receiving substitution notices must:
- Remit specified amounts to LIRS immediately
- Confirm compliance through the LIRS e-Tax platform
- Disclose available balances and encumbrances on taxpayer accounts
Similarly, employers, agents, tenants, and other affected parties are instructed to withhold specified sums from payments due to taxpayers and remit them within stipulated timeframes. Failure to comply with substitution directives constitutes an offense under the Act and may result in significant penalties.
Taxpayer Rights and Enforcement Consequences
While implementing this aggressive recovery strategy, LIRS has acknowledged that recipients of substitution notices retain the right to file written objections to underlying tax assessments within 30 days, in accordance with established appeal provisions.
However, the agency emphasized that enforcement through substitution does not eliminate the taxpayer's full liability. Any unpaid balance not recovered through third-party collection remains the responsibility of the defaulting taxpayer.
Potential consequences for non-compliance include:
- Liability equal to the specified tax amount
- Additional penalties and interest charges
- Further enforcement actions including distraint
- Possible prosecution under tax laws
Broader Context of National Tax Enforcement
This development in Lagos State aligns with Nigeria's broader tax framework tightening as the federal government seeks to boost revenue and reduce financial leakages. The renewed enforcement drive focuses on clearer definitions of tax debt, enhanced recovery mechanisms, and expanded technological capabilities for tracking liabilities.
With ambitious revenue targets established for 2026, taxpayers across Nigeria are facing closer scrutiny than ever before. The Lagos State initiative represents a pioneering approach that may influence tax enforcement strategies in other states across the federation.
The LIRS has urged all taxpayers with outstanding assessments to regularize their tax positions promptly to avoid escalating enforcement measures and potential legal consequences.
