The Presidential Fiscal Policy and Tax Reforms Committee has clarified that banks in Nigeria have no legal authority to debit customers’ bank accounts for taxes without the consent of the account holders.
Chairman of the Committee, Mr. Taiwo Oyedele, made the clarification while reacting to media reports suggesting that the Lagos State Government planned to begin debiting the personal bank accounts of taxpayers who fail to meet their tax obligations.
Oyedele described the reports as misleading, stressing that they do not reflect the provisions of Nigerian tax laws or how tax enforcement works in practice.
According to him, tax authorities in Nigeria do not possess the power to directly access or remove funds from individuals’ bank accounts. What exists under the law, he explained, is the “power of substitution,” which is often misunderstood.
“The power of substitution is a tax recovery method that allows a tax authority to request a third party to pay money belonging to a taxpayer who has refused to settle a confirmed and unpaid tax debt,” Oyedele said. “This only happens after all legal and administrative steps, including court appeals, have been completed.”
He emphasised that the power of substitution is not arbitrary and cannot be applied at will, noting that it is tightly regulated and used strictly as a last resort.
“This is not a routine action. It comes only after enquiries, assessments, objections, final notices and court appeals have all been concluded, and the tax debt has become final and legally due,” he explained.
Oyedele also sought to reassure low-income earners and small business owners, stating that such measures do not apply to people earning the national minimum wage or businesses below the taxable threshold.
“The power of substitution only makes sense where there is a large and confirmed tax debt. Most low-income earners and small businesses do not fall into this category under the new tax laws,” he said.
He added that the approach is not unique to Nigeria, noting that similar systems are used globally to recover unpaid taxes.
“This is a global practice. Other countries also allow tax authorities to recover confirmed tax debts through third-party mechanisms such as garnishment or payment notices,” Oyedele stated.
Explaining the rationale behind the policy, Oyedele said the power of substitution exists to promote fairness within the tax system.
“Without effective enforcement tools, compliant taxpayers end up carrying the burden, while defaulters are encouraged. This puts pressure on government finances and can lead to higher taxes for everyone else,” he said.
He outlined the strict conditions required before the power can be invoked, including the completion of the full tax assessment process, the confirmation that the debt is final and legally due, and a failure by the taxpayer to pay within the stipulated time after written notice.
According to him, a third party appointed as a substitute must be someone who holds funds belonging to the taxpayer or owes the taxpayer money.
“The tax authority may issue a notice to anyone holding funds for the taxpayer or owing the taxpayer,” Oyedele said.
However, he noted that such third parties are protected by law and are given the opportunity to either comply or formally object in writing within 30 days, providing valid reasons for their objection.
“There are also full rights of appeal under the tax dispute resolution system, just like with any tax assessment,” he added.
Oyedele said multiple safeguards are in place to prevent abuse of the process, including the right to due process, the right of substitutes to object, access to appeal mechanisms, and oversight by the Office of the Tax Ombud.
He stressed that the power of substitution is not designed to punish taxpayers or be used frequently.
“It is a carefully controlled tool meant to ensure fairness and accountability. It exists to ensure that confirmed and lawful tax debts are not ignored,” he said.
Oyedele urged the public to rely on accurate information and disregard reports suggesting that tax authorities can freely access bank accounts without following due legal process.