Author: Gist Correspondent

The Presidential Fiscal Policy and Tax Reforms Committee has clarified that banks do not have the authority to debit customers’ bank accounts for tax payments without the consent of the account holders.

Chairman of the Committee, Mr. Taiwo Oyedele, made this clarification while reacting to media reports suggesting that the Lagos State Government planned to begin debiting the personal bank accounts of taxpayers who default on 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 operates in practice.

According to him, tax authorities in Nigeria do not possess the power to directly withdraw funds from individuals’ bank accounts. Instead, what exists under the law is the “power of substitution,” which he said is often misunderstood.

He explained that the power of substitution is a tax recovery mechanism that allows tax authorities, as a last resort, to appoint a third party to pay money belonging to a taxpayer who has refused to settle a confirmed and unpaid tax liability.

Oyedele noted that this process can only be triggered after all legal and administrative procedures have been exhausted, including assessments, objections, final notices and court appeals.

“This is not an arbitrary or routine action. It is tightly regulated by law and can only be applied after the tax debt has become final and legally due,” he said.

He further assured low-income earners and small business owners that they are not the target of such measures, noting that individuals earning the national minimum wage and small businesses below the taxable threshold are exempt.

“The power of substitution only applies 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,” Oyedele explained.

The committee chairman added that the practice is not unique to Nigeria, pointing out that many countries adopt similar mechanisms, such as garnishment or third-party payment notices, to recover unpaid taxes.

He said the objective of the power of substitution is to promote fairness in the tax system by ensuring that compliant taxpayers are not unfairly burdened by those who refuse to pay their dues.

“Without effective enforcement tools, honest taxpayers end up subsidising defaulters, which can strain public finances and lead to higher taxes for everyone else,” he said.

Oyedele outlined the strict conditions that must be met before the power of substitution can be invoked, including the confirmation of the tax debt, its legal finality, and the failure of the taxpayer to pay within the time specified in writing.

He explained that a third party appointed as a substitute is typically an individual or organisation holding funds belonging to the taxpayer or owing the taxpayer money.

Under the law, he said, such a party is given the opportunity to comply or formally object in writing within 30 days, stating clear reasons for the objection.

Oyedele added that taxpayers and third parties retain full rights of appeal under the tax dispute resolution framework, with additional safeguards such as the involvement of the Office of the Tax Ombud to protect taxpayer rights.

He stressed that the power of substitution is not designed to punish taxpayers or to be used frequently, but rather to serve as a lawful and carefully controlled enforcement tool.