The Lagos State Internal Revenue Service (LIRS) has issued a strong public warning that it will begin using its legal powers to recover unpaid taxes directly from third parties holding or owing money to defaulting taxpayers, including banks, employers, tenants, debtors, business partners and customers.
In a formal notice dated January 21, 2026 and published on the LIRS website, Executive Chairman Ayodele Subair invoked Section 60 of the Nigeria Tax Administration Act 2025 (NTAA 2025), which grants the Service the authority of substitution — the right to redirect funds owed to a taxpayer toward settling established tax liabilities.
The power applies to unpaid Personal Income Tax (PIT), Capital Gains Tax (CGT), Stamp Duties, and Withholding Tax (WHT) administered by LIRS.
“The Lagos State Internal Revenue Service is empowered 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 directly to the Service,” the notice stated.
Affected parties include:
– Banks and other financial institutions
– Employers (withholding from salaries or other payments)
– Tenants (rent due to landlords with tax arrears)
– Debtors and business partners
– Customers and agents owing money to the taxpayer
Once a substitution notice is served, the recipient is legally required to deduct and remit the specified amount to LIRS within the timeframe stated in the notice. Compliance must be confirmed through the LIRS e-Tax platform, and banks may be asked to disclose available balances of the taxpayer.
Failure to comply is an offence under the Act. The tax liability is considered settled only to the extent of the amount actually remitted. Parties who do not hold or owe any funds to the taxpayer must notify LIRS in writing within the stipulated period. Recipients also have the right to object to the notice in writing within 30 days, in line with appeal provisions in the law.
The move signals a more aggressive stance on tax recovery as Lagos — Nigeria’s economic powerhouse — seeks to close widening revenue gaps and fund critical infrastructure, security and social services. LIRS has in recent years intensified enforcement through data matching, third-party reporting and field audits, but the use of substitution powers marks a significant escalation.
Tax experts say the provision is a standard feature in many modern tax administrations worldwide, designed to improve collection efficiency when direct recovery from the taxpayer proves difficult. However, it places added compliance responsibility on banks, employers and other intermediaries, who risk penalties for non-compliance.
The notice comes amid broader national discussions on tax compliance and enforcement following the passage of the Nigeria Tax Administration Act 2025, which harmonised many collection powers across federal and state authorities.
For businesses and individuals with outstanding tax obligations in Lagos, the message is clear: settlement directly with LIRS remains the safest path, as third parties may soon be compelled to step in and deduct amounts owed. LIRS has urged all affected parties to review their tax status and regularise any arrears promptly to avoid substitution action.
