The Lagos State Internal Revenue Services (“LIRS”) has issued a public notice to inform the general public of the provisions of the Nigeria Tax Administration Act, 2025 (NTAA 2025) of Section 60 of the Nigeria Tax Administration Act, 2025 (NTAA 2025) relating to the Power of Substitution vested in the relevant tax authority.

Introduction

The Power of Substitution is a lawful collection mechanism designed to ensure the efficient recovery of unpaid taxes, Section 60, Nigeria Tax Administration Act, 2025, empowers LIRS 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 to the service in settlement or partial settlement of the outstanding tax liability.

Implication of the power of substitution

Where a taxpayer fails, neglects, or refuses to settle any established outstanding tax liability when due, LIRS may exercise its power under Section 60 to direct any of the following persons to remit the amount owed by the taxpayer:

• Banks and other financial institutions;
• Employers;
• Tenants, debtors, or customers of the taxpayer;
• Agents, business partners, or any person holding money on behalf of the taxpayer; and
• Any person owing money to the taxpayer, whether presently due or accruing.

Once a substitution notice is issued, the person served is statutorily required to remit to LIRS the amount specified in the notice from funds belonging to, or payable to, the defaulting taxpayer.

Where the person served does not hold or owe any money to the taxpayer, such person must notify LIRS in writing within the period specified.

Objection to the Power of Substitution

A person served with a substitution notice may object in writing within thirty (30) days of receipt, stating specific grounds for the objection. The provisions of the law relating to objections and appeals shall apply to such notices as if they were assessment or demand notices.

Continued Liability of the Taxpayer.

The taxpayer remains liable for any unpaid balance not recovered through substitution. Taxpayers are therefore advised to settle all outstanding tax liabilities promptly to avoid enforcement actions.

Penalties for Non-Compliance

Any person who fails to comply with a substitution directive issued under Section 60 shall be liable to:

• The amount specified in the notice as though it were their own original tax liability;
• Additional interest and penalties for non-compliance; and
• Enforcement measures permitted under NTAA 2025, including distraint.

Further failure to comply may result in prosecution.

Key Takeaway: LIRS may lawfully recover unpaid taxes directly from persons who hold or owe money to defaulting taxpayers through substitution notices. Taxpayers are urged to regularise outstanding liabilities promptly, while third parties served with substitution notices must comply strictly to avoid personal liability and penalties.