The Lagos State Government has taken a decisive step to strengthen tax enforcement, announcing that it will begin recovering unpaid taxes directly from banks and other third parties linked to tax defaulters. The move, which is already generating widespread public debate, signals a tougher stance by the state on revenue collection and tax compliance.
The policy is being driven by the Lagos State Internal Revenue Service (LIRS), which disclosed that it will now fully apply the legal instrument known as the “power of substitution” to recover outstanding tax liabilities. This allows the tax authority to collect money owed by a taxpayer from individuals or organisations holding funds on their behalf.
According to LIRS, the enforcement action is backed by Section 60 of the Nigeria Tax Administration Act, 2025, which authorises tax authorities to appoint third parties as agents for the purpose of settling tax debts. These third parties may include banks, employers, tenants, contractors, business partners or any person indebted to a tax defaulter.
Under the arrangement, once a substitution notice is issued, the affected third party is legally required to remit specified funds directly to LIRS instead of paying the defaulting taxpayer. The funds recovered will be applied to outstanding tax obligations such as Personal Income Tax, Withholding Tax, Capital Gains Tax and other statutory levies.
The tax authority clarified that banks will play a central role in the process, as financial institutions may be directed to debit accounts belonging to tax defaulters to offset unpaid liabilities. Employers may also be instructed to divert salaries or entitlements, while tenants and debtors could be compelled to redirect rent or payments due.
LIRS warned that failure by any third party to comply with a duly issued substitution order could attract penalties and legal consequences. The agency stressed that such parties would be deemed liable if they ignore or frustrate the execution of the directive.
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Officials of the revenue service described the policy as a necessary measure to curb tax evasion and improve compliance in Lagos, Nigeria’s economic hub. They noted that the state loses significant revenue annually to deliberate non-payment of taxes, despite the growing demand for public infrastructure and social services.
The announcement has sparked mixed reactions among residents and business operators. While some stakeholders welcomed the move as a long-overdue step to enforce fiscal discipline, others expressed concern about possible abuses and the need to protect taxpayers’ rights in the process.
In response to these concerns, LIRS advised taxpayers who believe they have been wrongly assessed or targeted to engage the service through established dispute resolution channels. The agency maintained that the enforcement will follow due process and existing legal safeguards.
As Lagos begins full implementation of the policy, individuals and businesses have been urged to review their tax records and settle outstanding obligations promptly. With the new enforcement powers in place, analysts say the era of tax default in the state may be coming to a swift and costly end.
