Lagos to Enforce Direct Tax Recovery from Banks and Third Parties
Lagos State has taken a decisive step to tighten tax enforcement, announcing that it will now recover unpaid taxes directly from bank accounts and from third parties connected to defaulting taxpayers. The move signals a tougher stance by Africa’s largest city economy as it looks to close long-standing revenue gaps and boost compliance.
The new approach, announced by the Lagos State Internal Revenue Service (LIRS), allows the tax authority to instruct banks, employers, tenants, customers and other business partners to hand over money owed to tax defaulters straight to the government without waiting for the taxpayer to make payment themselves.
What Lagos Is Doing—and Why It Matters
At the centre of the policy is a legal mechanism known as the “Power of Substitution.” In simple terms, it means that if an individual or company fails to pay you taxes, LIRS can legally step into their place and collect the money from anyone holding funds on their behalf
This could include:
- Banks, which may be ordered to deduct unpaid taxes directly from a customer’s account
- Employers, who may be required to remit part of salaries owed to staff with outstanding tax liabilities
- Tenants or business partners, who may be instructed to divert rent or payments to the state instead of the taxpayer.
- The authority to do this is backed by Nigeria’s updated tax laws, and Lagos says it is now fully enforcing those provisions.
How It Works in Practice
Once a substitution notice is issued, the recipient is legally required to remit the specified amount to LIRS from funds belonging to or payable to the defaulting taxpayer. Failure to comply is classified as an offence under the NTAA and may attract penalties set by law.
For banks and financial institutions, compliance includes:
- Remitting the tax amount without delay
- Confirming compliance through the LIRS e-Tax platform
- Disclosing the taxpayer’s available balances and any encumbrances if requested by the agency.
Third parties such as employers, tenants and debtors are also expected to withhold the designated sums from their payment obligations to the taxpayer and remit them within the timeframe specified in the substitution notice.
What This Means for Taxpayers and Businesses
For taxpayers, the message is clear: non-payment now carries more immediate consequences. Instead of long delays, enforcement actions or drawn-out court processes, tax authorities can now move swiftly to recover funds once liabilities are established.
For banks and businesses, the policy introduces new compliance responsibilities. Financial institutions and corporate entities will need stronger internal processes to respond quickly to substitution notices and ensure they meet legal obligations without disrupting operations.
The Bigger Picture
For the global audience, Lagos’ decision reflects a wider trend across emerging economies: governments are becoming more assertive in tax enforcement as they search for sustainable revenue sources. As Africa’s largest city and one of its most important commercial hubs, what Lagos does often sets the tone for others.
For now, the message from the state is unmistakable tax compliance is no longer optional, and enforcement is moving closer to the money itself.
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