Lagos Tax Authority Implements New Collection Strategy Through Third Parties
The Lagos State Internal Revenue Service has issued a significant public notice detailing its intention to enforce the Nigeria Tax Administration Act 2025. This move represents a major shift in tax recovery methodology, as the agency will now utilize third parties to collect outstanding tax liabilities from defaulting taxpayers.
Statutory Power of Substitution Activated
According to the official notice, LIRS will begin exercising its statutory Power of Substitution as captured in the Nigeria Tax Administration Act 2025. This legal provision empowers the revenue service to direct any person holding or owing money to a taxpayer who has failed to pay established final tax liabilities to remit such funds directly to the Service.
The mechanism allows for either full or partial settlement of outstanding tax debts, marking a significant escalation in the state's efforts to improve tax compliance and revenue mobilization. The notice specifically states that where a taxpayer fails, neglects, or refuses to settle any established outstanding tax liability when due, LIRS may exercise its power under Section 60 of the Act.
Comprehensive List of Substitute Collectors
The Lagos State Internal Revenue Service has identified several categories of individuals and entities that may be used as substitute collectors under this new framework:
- Banks and other financial institutions operating within Lagos State
- Employers of defaulting taxpayers
- Tenants, debtors, or customers who owe money to the taxpayer
- Agents, business partners, and any person holding money on behalf of the taxpayer
- Any person owing money to the taxpayer, whether presently due or accruing
This broad definition effectively means that family members, friends, or business associates holding funds for tax defaulters could be compelled to redirect those funds to LIRS.
Operational Mechanics and Legal Requirements
Once a substitution notice is issued, the recipient becomes legally obligated to remit the specified amount from funds belonging to or payable to the defaulting taxpayer. The tax liability is considered paid to the extent of this remittance, and failure to comply constitutes an offence under the Nigeria Tax Administration Act.
Financial institutions face additional requirements under this new framework. Banks must confirm compliance through the LIRS e-Tax platform and provide information on the taxpayer's available balances and any encumbrances when requested by the revenue service.
Strategic Objectives and Public Service Implications
LIRS officials have emphasized that the Power of Substitution is not intended as a punitive measure but rather as a lawful mechanism to ensure taxpayers meet their obligations. The revenue service notes that this approach enables the state to fund developmental projects and provide essential public services more effectively.
The implementation of this statutory power represents a significant strengthening of Lagos State's tax administration capabilities. By leveraging third-party relationships, LIRS aims to create a more comprehensive and effective tax recovery system that leaves fewer avenues for tax evasion.
All stakeholders, including financial institutions, employers, and individuals who might find themselves in positions to hold funds for others, are urged to familiarize themselves with the provisions of the Nigeria Tax Administration Act 2025. Prompt compliance is essential to avoid legal penalties that may arise from failure to adhere to substitution notices.
This development comes as part of broader tax administration reforms across Nigeria, with digital banking data increasingly being leveraged to enhance tax compliance. The accuracy of transaction descriptions and bank transfer narrations has become more critical than ever as authorities implement more sophisticated tax collection methodologies.
