The Lagos State Government, through the Lagos State Internal Revenue Service (LIRS), has issued a formal public notice announcing the activation of its statutory Power of Substitution to recover outstanding tax liabilities from defaulting taxpayers.
The notice, dated January 2026, cites Section 60 of the Nigeria Tax Administration Act (NTA Act) 2025, which empowers tax authorities to compel third parties holding money on behalf of a taxpayer to remit such funds directly to the tax authority in settlement—full or partial—of unpaid taxes.
What the ‘Power of Substitution’ Means
Under the law, where a taxpayer fails, neglects, or refuses to settle an established tax liability when due, LIRS may direct specified third parties to pay the outstanding amount directly to the Service.
The categories of persons and entities that may be served with a substitution notice include:
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Banks and other financial institutions
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Employers of the taxpayer
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Tenants, debtors, or customers of the taxpayer
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Agents, business partners, or representatives holding funds on the taxpayer’s behalf
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Any person holding or owing money to the taxpayer, whether currently payable or accruing
Once a substitution notice is served, the law treats the specified amount as legally redirected from the taxpayer to LIRS. Any remittance made pursuant to the notice is deemed a valid discharge of the payer’s obligation to the taxpayer to the extent of the amount paid.
Implications for Banks and Financial Institutions
The notice places particular emphasis on the obligations of banks and financial institutions. Upon receipt of a substitution notice, such institutions are required to:
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Remit the specified amount to LIRS without delay
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Confirm compliance via the LIRS e-Tax platform
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Provide information on available balances and transactions, where requested, to facilitate enforcement
Failure to comply with a substitution directive constitutes an offence under the Act and may attract statutory sanctions.
A Stronger Enforcement Signal
The Power of Substitution is described by LIRS as a lawful and efficient recovery mechanism, especially in cases involving withholding tax (WHT), capital gains tax (CGT), stamp duties, and other administered taxes. Its renewed emphasis signals a more assertive enforcement posture by Lagos tax authorities at a time of rising fiscal pressure on sub-national governments.
For businesses, professionals, and financial intermediaries operating in Lagos, the notice serves as a reminder that tax liabilities now carry enforceable third-party consequences, extending well beyond the defaulting taxpayer alone.
