No escape: LIRS to tap banks, employers, others to settle unpaid tax bills

If you’ve been ignoring those tax reminders in Lagos, your bank account or your next paycheck might be the one to answer the call as the Lagos State Internal Revenue Service (LIRS) has officially announced it is activating its “power of substitution”—a legal maneuver that allows the agency to collect unpaid taxes directly from third parties who hold money for defaulting taxpayers.

In a public notice dated January 21, 2026 but made available to the media on Sunday, the agency made its intentions clear. According to the notice signed by Executive Chairman Mr. Ayodele Subair: “The Lagos State Internal Revenue Service (LIRS) issues this public notice to inform the general public, particularly employers, financial institutions, business operators and tax agents, of the provisions of Section 60 of the Nigeria Tax Administration Act, 2025 (NTAA 2025), relating to the power of substitution vested in the relevant tax authority.”

The agency isn’t just asking nicely; it’s leaning on the Nigeria Tax Administration Act (NTAA) 2025. This law gives the LIRS the green light to go after funds sitting with banks, employers, or even tenants if the original taxpayer refuses to pay up.

The notice explains that: “The NTAA 2025 empowers the Lagos State Internal Revenue Service 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.”

This isn’t limited to just one type of tax. The LIRS clarified that: “The power of substitution is a lawful collection mechanism designed to ensure efficient recovery of unpaid taxes, including Personal Income Tax (PIT), Capital Gains Tax (CGT), Stamp Duties and Withholding Tax (WHT) administered by LIRS.”

If you owe the state money, the LIRS can now look to your business ecosystem to settle the debt. The agency stated that: “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 pay the amount owed by the taxpayer.”

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Targeted third Parties required to pay on behalf of a tax defaulter include banks and financial Institutions, employers, tenants and debtors, who are directed to pay rent or owed debts directly to LIRS instead of the landlord/creditor and agents and business partners.

The notice further emphasized: “Banks and other financial institutions, employers, tenants, debtors, customers, agents, business partners and any person owing money to a defaulting taxpayer may be directed to pay such amounts directly to LIRS.”

For the third parties involved, this isn’t optional. The LIRS warned that “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.”

Failure to comply is treated as a serious offense under the Act. While third parties can object to an assessment in writing within 30 days, simply ignoring the notice could lead to:

– Liability for the full tax amount.
– Additional penalties and interest.
– Possible prosecution and “distraint” (seizure of assets).

The LIRS concluded by advising taxpayers to settle their bills early to avoid these aggressive recovery measures, noting that even if some money is recovered through a third party, the taxpayer remains liable for any leftover balance.

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