The Lagos State Internal Revenue Service has announced that the Nigeria Tax Administration Act 2025 now gives state revenue agencies the power to recover unpaid taxes by accessing funds held not only by tax defaulters but also by third parties linked to them, including employers, business partners, tenants, friends and family members.
The service said the law authorises direct deductions from rent payments and from bank accounts of individuals or entities holding money on behalf of a defaulting taxpayer. This marks a significant expansion of tax enforcement powers, particularly for businesses that operate through partners, agents, or informal financial arrangements.
According to LIRS, the new framework allows the agency to act once a tax liability has been established and remains unpaid after the due date. Enforcement is no longer limited to the personal bank accounts of the defaulter but can extend to any party financially connected to them.
The agency explained that Section 60 of the Act empowers it to issue substitution notices to banks, employers, tenants and other persons who either hold funds for, or owe money to, a taxpayer in default. Such parties may be required to remit the funds directly to LIRS in settlement of the outstanding tax obligation.
“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 banks, employers, tenants, business partners, agents and any person holding or owing money to the taxpayer to pay the amount owed,” the service said.
In practice, LIRS said it may issue substitution notices to financial institutions or to third parties holding funds on behalf of a taxpayer. Banks are required by law to disclose account balances linked to the defaulter and remit the relevant amounts to the tax authority without delay.
Proof of payment is subsequently issued through the LIRS electronic tax platform. The service warned that failure to comply with a substitution directive is now treated as an offence under the law. This means friends, business associates, and other connected parties may become financially liable where they are found to be holding funds belonging to a tax defaulter.
For small and medium-sized enterprises, the development underscores the growing risks of informal financial arrangements, shared accounts, and unstructured partnerships, as tax enforcement increasingly targets the wider business network rather than only the registered taxpayer.
