A new wave of tax regulations has emerged as 2026 unfolds, drawing attention to recent modifications initiated by the federal government. On January 1, 2026, the Nigeria Tax Act and the Nigeria Tax Administration Act were introduced, aiming at a nationwide simplification of tax processes. Following these changes, the Lagos State Internal Revenue Service (LIRS) has introduced its own specific enforcement measures.
On January 21, 2026, Ayodele Subair, the Executive Chairman of the LIRS, released a public notice detailing the new concept termed 'Power of Substitution.'
In the announcement, the LIRS clarified that the law grants them the authority to instruct any individual or entity holding funds for a taxpayer with an outstanding tax obligation to transfer those funds to settle the debt.
This approach allows the state to collect any existing unpaid taxes directly from individuals who owe them, preventing lengthy delays in payment. Thus, taxpayers in Lagos need to be aware that if a tax bill remains unpaid, the government has the means to enforce payment directly and efficiently.
Understanding the “Power of Substitution” is crucial. This provision allows the LIRS to bypass waiting for taxpayers to settle their debts voluntarily. Instead, they can appoint a third party, such as a bank or employer, to fulfill the payment using funds that would have otherwise gone to the taxpayer. This legal method facilitates the recovery of Personal Income Tax, Capital Gains Tax, and even Stamp Duties.
Who may be compelled to remit payments on behalf of tax defaulters? The LIRS can issue a 'substitution notice' to anyone who possesses money owed by a tax defaulter. This might include:
\- Your Bank: They could be directed to withdraw funds directly from your account.
\- Your Employer: Your salary may be garnished to pay off tax liabilities.
\- Your Tenants: If you're a landlord, any rental payments could be redirected to the LIRS instead of your account.
\- Your Business Partners: Customers or any individuals who owe you money could be instructed to prioritize tax payments to the LIRS.
For employees, this implies employers become the initial point for potential remittance. If you owe personal income tax, your company’s finance department may be obligated to directly deduct the owed amount from your paycheck. This requirement could slightly reduce your take-home pay until the debt is resolved.
Small business owners should also be aware that the LIRS can notify their customers or tenants, instructing them to fulfill payments to the government rather than the business itself. This new measure emphasizes the importance of maintaining accurate tax records to prevent unforeseen complications with clientele.
Additionally, under the new compliance rules, banks and employers are required to act promptly upon receiving these notices. They must transfer the specified amounts to the LIRS without procrastination and report account statuses through the e-Tax platform.
Failure to comply with a substitution notice constitutes a legal offense under the new Act. Taxpayers do, however, have the right to contest an assessment within 30 days of receiving such notice, providing a form of protection against immediate collection efforts.
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