The Nigeria Tax Administration Act 2025 introduced sweeping reforms within the Nigerian Tax Regime, one of which is the “power of substitution” as contained in Section 60 of the Act.
This provision grants relevant tax authorities, without an order of the High Court, the power to bypass taxpayers and appoint third parties as agents for the recovery of established tax liabilities from taxpayers who have defaulted. This has sparked controversial public debates on whether tax authorities can lawfully direct banks, employers or any person owing money to the taxpayer to debit the taxpayers’ accounts without a court order or if it is rather a long‐existing mechanism governed by due process.1
On 21 January, 2026, the Lagos State Internal Revenue Service (LIRS) issued a definitive Public Notice (Ref: LIRS/003/01/2026) signalling the activation of this power to boost enforcement and recovery for Personal Income Tax (PIT), Capital Gains Tax (CGT), Stamp Duties, and Withholding Tax (WHT).2 While the administrative logic of this move is rooted in efficiency and the closing of the tax gap, the legal matters arising are numerous as they touch upon the constitutional rights of taxpayers, the contractual fiduciary duties of financial institutions and the nuanced jurisprudence of obtaining a court order before an account can be effectively frozen or funds liquidated.3
SCOPE AND PURPOSE OF SECTION 60 OF THE NTA ACT
The Power of Substitution is fundamentally an administrative garnishment process. Section 60 makes clear when and against whom substitution may be used. The tax authority may act (i) when a final tax assessment is due and remains unpaid, or (ii) when a third party is in possession of, or likely to possess, funds belonging to the defaulting taxpayer. 4
The implication of a substitution notice is that the person served becomes statutorily liable for the debt if they fail to comply. The law treats the remittance as if it were the agent’s own original tax liability, making the agent vulnerable to the same enforcement measures, including distraint and prosecution, if they disregard the directive.5
It is important to make clear that the purpose of substitution is to secure the collection of established, final and conclusive tax liabilities. For a tax liability to be established, final, and conclusive, there are some specific procedural steps that must be exhausted and only then may the tax authority resort to substitution.
The process begins with an assessment, which can be based on a self-assessment by the taxpayer or a best-judgment (BOJ) assessment by the authority.6 Once a notice of assessment is served, the taxpayer has a 30-day window to file a written objection. If the tax authority refuses to amend the assessment, it issues a Notice of Refusal to Amend. At this point, the taxpayer may appeal to the Tax Appeal Tribunal (TAT) within 30 days. An assessment only becomes final and conclusive if no objection is filed within the 30-day window or if the appeal process in the Tax Appeal Tribunal or higher courts is exhausted. Any attempt to exercise the power of substitution before this threshold is crossed is viewed as a violation of the taxpayer’s right to a fair hearing under Section 36 of the 1999 Constitution and it is ultra vires of the power of the tax authority.7
Therefore, the power of substitution is expected to be a last-resort recovery mechanism against tax evasion, activated only after inquiries, assessment, objections, notices and, where relevant, judicial determination, and not an administrative shortcut by the tax authority which can be absolutely challenged in the court of law.
MATTERS ARISING FROM SECTION 60 OF THE NTA ACT
The most contentious matter arising from Section 60 is whether the tax authority can unilaterally freeze a bank account or order a transfer of funds without first obtaining a court order. While the NTAA 2025 gives the Relevant Tax Authorities the power to appoint agents and direct payments, it does not explicitly state that this can be done without judicial oversight.
In the landmark case of Ama Etuwewe v. FIRS and GTB (Suit No. FHC/WR/CS/17/2019)8, the Federal Inland Revenue Service (FIRS) appointed Guaranty Trust Bank (GTB) as a collecting agent for the Plaintiff, an individual legal practitioner, alleging unpaid Companies Income Tax (CIT). The Bank proceeded to freeze the Plaintiff’s account. The Federal High Court (FHC) held that the FIRS’s actions were unlawful, null, and void. The Court found that the Relevant Tax Authority had not followed the requisite due process in exercising its statutory powers and that the Bank had negligently breached its fiduciary duty to the customer.9
The Court awarded substantial damages jointly and severally against the FIRS and the Bank, serving as a stark warning that the power of substitution is not absolute and must be exercised within the bounds of the law.10 This case established that when a taxpayer’s account is unlawfully restricted, the remedy is to seek declaratory and injunctive reliefs at the Federal High Court.
Another major point to look at under Section 60 of the Act is the Procedure and Enforcement of the Substitution Notices. Under this Section, the relevant tax authority is to issue a notice in writing to a third party (the agent of the taxpayer) directing payment of the tax. The notice must specify the amount owed and the funds to be used. Once served, the recipient is statutorily required to remit that sum from any money it holds on the taxpayer’s behalf.11 In effect, the notice operates like a demand for payment: the substitute simply withholds the specified amount and pays it over to the tax agency.
However, one of the most significant concerns for taxpayers is the risk of multiple account freezes.12 It is not uncommon for a tax authority to send substitution notices for the same debt to several different banks. If the debt is N100,000,000.00 (One Hundred Million Naira), and multiple banks place a lien on the account, the taxpayer may effectively have several Hundred Million Naira frozen. This can cripple a business, preventing it from paying salaries or meeting trade obligations, and if this occurs in different situations, it will definitely have negative effects on the country’s economy and greatly discourage prospective investors.
Notably, Section 60(5) treats a substitution notice as akin to an assessment or demand notice for purposes of appeal. This means that the taxpayer and the substitute agent can formally object to or appeal the notice just as if it were a tax assessment. The obligated third party may either comply or object in writing within 30 days of service, stating reasons for any refusal. By following these steps, third-party agents can fulfil their statutory obligations while protecting themselves from negligence claims and constant litigation.
STRATEGIC RECOMMENDATIONS FOR RELEVANT STAKEHOLDERS
As the Lagos State Inland Revenue Service moves to implement Section 60 of the Nigeria Tax Administration Act, all stakeholders must deploy their compliance strategies. For taxpayers, the primary defence against the power of substitution is regularizing tax records to avoid being flagged as a defaulter.13
For banks and other agents, the focus must be on due diligence. Banks should demand proof of a final and conclusive assessment as well as strict compliance with due process before transferring customer funds. They should also use the 30-day objection window if they believe the substitution notice is improperly issued.
The relevant tax authorities, in turn, must ensure that their enforcement measures are proportionate. Aggressive signalling may boost short-term revenue, but if it is perceived as arbitrary or draconian, it can damage taxpayer confidence in the tax regime and discourage investors.
CONCLUSION
The Power of Substitution under Section 60 of the Nigeria Tax Administration Act, 2025, represents a significant modernization of the country’s revenue recovery tools. By implementing third-party recovery mechanisms and providing a uniform procedural basis, the Act aims to eliminate the inefficiencies of the old tax regime and ensure complete tax compliance. However, to ensure effectiveness and efficiency, the judicial supervision should not be eroded in any manner.
Footnotes
1. The Power of Substitution in Nigeria’s Tax System: Enforcement, Equity, and Debate – Daily News Nigeria https://dailynewsngr.com.ng/the-power-of-substitution-in-nigerias-tax-system-enforcement-equity-and-debate/
2. Power of Substitution Pursuant to Section 60 of the Nigeria Tax Administration Act, 2025.Pdf
3. Implementation risk looms as Lagos targets third parties in tax recovery – Businessday NG, accessed January 29, 2026, https://businessday.ng/business-economy/article/implementation-risk-looms-as-lagos-targets-third-parties-in-tax-recovery/
4. Lagos Revenue Service Activates Power of Substitution to Boost Tax Recovery, accessed January 29, 2026, https://www.thisdaylive.com/2026/01/27/lagos-revenue-service-activates-power-of-substitution-to-boost-tax-recovery/
5. ibid
6. PwC’s Tax Series The FIRS substitution order – 2 facts and some recommendations, accessed January 28, 2026, https://www.pwc.com/ng/en/assets/pdf/firs-substitution-order.pdf
7. Appointment of banks by FIRS as collecting agents for recovery of alleged tax liabilities, accessed January 28, 2026, https://assets.kpmg.com/content/dam/kpmg/ng/pdf/tax/Appointment-of-banks-by-FIRS-as-collecting-agents-for-recovery-of-alleged-tax-liabilities.pdf
8. Ama Etuwewe v. FIRS and GTB (Suit No. FHC/WR/CS/17/2019)
9. Proper Exercise Of The Powers Of The FIRS To Freeze Defaulting Taxpayers’ Accounts And Appoint Banks As Tax Collecting Agents – Banwo & Ighodalo, accessed January 28, 2026, https://www.banwo-ighodalo.com/grey-matter/proper-exercise-of-the-powers-of-the-firs-to-freeze-defaulting-taxpayers-accounts-and-appoint-banks-as-tax-collecting-agents/
10. ibid
11. LIRS to Recover Unpaid Taxes Through Banks, Employers, Business Partners, accessed January 29, 2026, https://www.nigeriainfo.fm/news/homepagelagos/lirs-to-recover-unpaid-taxes-through-banks-employers-business-partners/
12. The Power of The FIRS To Order The Freezing of Bank Accounts, accessed January 29, 2026, https://uubo.org/wp-content/uploads/2022/09/The-Power-of-The-FIRS-To-Order.pdf
13. LIRS to Recover Unpaid Taxes Through Banks, Employers, Business Partners, accessed January 29, 2026, https://www.nigeriainfo.fm/news/homepagelagos/lirs-to-recover-unpaid-taxes-through-banks-employers-business-partners/
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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