The Lagos State Internal Revenue Service (LIRS) has in recent days drawn public attention after issuing a formal notice announcing its intention to activate the statutory Power of Substitution under Section 60 of the Nigeria Tax Administration Act (NTA Act) 2025.
While the notice itself is legally orthodox, public commentary and some media reports have substantially overstated the scope of the power, creating the impression that the state has acquired sweeping authority to seize money from anyone connected to a tax defaulter. That interpretation is inaccurate.
Below, Arbiterz sets out the most common misinterpretations of the Power of Substitution — and clarifies what the law actually permits.
Misinterpretation 1: LIRS Can Seize the Personal Funds of Friends and Family Members
This is the most widespread and serious misunderstanding.
The law does not authorise LIRS to seize or confiscate the personal property of friends, family members, or associates of a tax defaulter. Relationship alone has no legal relevance.
What the law permits is the redirection of money belonging to the taxpayer that is being held by a third party or is owed to the taxpayer. A friend or family member is affected only where they are in possession of the taxpayer’s funds, not their own.
Misinterpretation 2: The Power of Substitution Is a New Lagos Tax Law
The Power of Substitution is not new. It has long existed within Nigeria’s tax administration framework and has been exercised by revenue authorities in various forms.
What has changed is not the existence of the power, but:
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Its formal consolidation under the Nigeria Tax Administration Act 2025; and
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The decision by LIRS to publicly signal a more assertive use of the mechanism.
Portraying it as a sudden expansion of state power misrepresents both its history and legal intent.
Misinterpretation 3: LIRS Can Act Without a Prior Tax Assessment
Substitution does not apply to speculative or disputed tax claims.
The power can only be exercised where a tax liability has been:
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Properly established, and
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Has become due and unpaid.
Where an assessment is under objection or appeal, substitution is not intended to bypass due process. This safeguard is fundamental and often omitted from public discussion.
Misinterpretation 4: Banks Must Automatically Freeze Accounts
The issuance of a substitution notice does not equate to an automatic or blanket account freeze.
Banks and financial institutions are required to:
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Remit specified amounts identified in a substitution notice; and
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Provide information only to the extent necessary to confirm the existence of taxpayer funds.
They are not authorised — nor required — to indiscriminately freeze accounts or disclose unrelated third-party balances.
Misinterpretation 5: Third Parties Become Personally Liable for the Tax Debt
Third parties do not assume the taxpayer’s tax liability.
Their role under substitution is limited to that of a pay-through conduit. Once the specified amount is remitted to LIRS, the third party is legally discharged from any obligation to the taxpayer for that amount.
The law does not permit LIRS to pursue third parties beyond funds actually belonging to the taxpayer.
Misinterpretation 6: Substitution Is a Criminal Enforcement Tool
The Power of Substitution is a civil recovery mechanism, not a criminal sanction.
Its exercise does not imply:
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Criminal wrongdoing
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Arrest or prosecution
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Asset forfeiture
Criminal proceedings require separate statutory thresholds and are not triggered by substitution alone.
Misinterpretation 7: LIRS Has Unlimited or Retroactive Authority
The power is neither unlimited nor open-ended.
Substitution is constrained by:
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Statutory limitation periods
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Evidentiary requirements
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Judicial oversight and review
Improper or excessive use remains subject to challenge in court.
What the Power of Substitution Actually Is
Properly understood, the Power of Substitution is a targeted enforcement tool designed to prevent tax evasion through intermediaries, ensuring that taxpayers cannot shield their obligations by diverting funds through banks, tenants, employers, or agents.
It is not a licence for arbitrary seizure, nor a mechanism for expanding tax liability beyond the defaulting taxpayer.
As Lagos intensifies revenue enforcement amid fiscal pressure, clarity — rather than alarm — is essential for businesses, banks, and individuals navigating the evolving tax landscape.
