The Presidential Fiscal Policy and Tax Reforms Committee has said that banks cannot debit customers accounts for taxes without the consent of such customers.
Chairman, Presidential Fiscal Policy and Tax Reforms Committee, Mr Taiwo Oyedele, said that tax authorities in Nigeria do not have the power to directly debit or take money from people’s bank accounts.
Oyedele was reacting to media reports suggesting that the Lagos State Government planned to start debiting the personal accounts of taxpayers who fail to pay their taxes.
He described such reports as misleading, noting that they did not reflect how the law actually works.
He explained that what exists in Nigerian tax law is the “power of substitution,” which is very different from directly taking money from a person’s bank account.
He said: “The power of substitution is a tax recovery method that allows the tax authority to ask a third party to pay money that belongs to a taxpayer who has refused to settle a confirmed and unpaid tax debt. This only happens after all legal and administrative steps, including court appeals, have been completed”.
According to him, the power of substitution cannot be used freely or without limits as it is tightly controlled by law and can only be applied after a long process has been followed.
“This is not an arbitrary or routine action. It is a last resort that can only be used after enquiries, assessments, objections, final notices and court appeals have all been concluded, and the tax debt has become final and legally due,” Oyedele said.
He also allayed fears among low-income earners and small business owners pointing out that people who earn the national minimum wage or small businesses that fall below the taxable threshold are not affected by such measure like power of substitution.
He said: “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 explained that this approach is not unique to Nigeria as many countries use similar systems to recover unpaid taxes.
“This is a global practice. Other countries also allow tax authorities to use third parties, such as through garnishment or third-party payment notices, to collect confirmed tax debts,” Oyedele said.
He pointed out that the main reason for having this power is to make the tax system fair to everyone.
He said: “Without strong tools to enforce payment, honest taxpayers end up carrying the burden, while those who refuse to pay are encouraged. This can put pressure on government finances and lead to higher taxes for everyone else”.
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He outlined the strict conditions that must be met before the power of substitution can be used. He said the tax authority must first complete the full process of establishing the tax debt, the debt must be final and legally due, and the taxpayer must have refused or failed to pay within the time given in writing.
He added that when a third party is appointed as a “substitute,” it means the person or organisation holds money belonging to the taxpayer or owes the taxpayer some money.
“The tax authority can send a notice to anyone who is holding funds for the taxpayer or owes the taxpayer money,” Oyedele said.
He explained that such a person is not forced to act without a chance to respond. He said the law allows the appointed party to either comply or formally object in writing within 30 days, stating clear reasons for the objection.
He said: “There are also full rights of appeal under the tax dispute system, just like with any tax assessment”.
He said there were several protections in place to prevent abuse of the process, including the right to due process in assessing the tax, the right of the substitute to object, the right to appeal, and the involvement of the Office of the Tax Ombud to protect taxpayer rights.
He insisted that the power of substitution was not meant to punish people or be used regularly.
He said: “It is a carefully controlled tool designed to make sure the tax system is fair. It exists to ensure that people who have a confirmed and lawful tax debt cannot simply ignore their obligation to pay”.
He urged the public to seek correct information and not be misled by reports that suggest tax authorities can simply reach into bank accounts without following the law.
