Lagos State Internal Revenue Service (LIRS) is authorized under the Nigeria Tax Administration Act (NTAA) 2025 to directly recover unpaid taxes from taxpayers by seizing funds from their bank accounts and through third parties. The LIRS law allowing the recovery of unpaid taxes by seizing funds from bank accounts officially took effect on January 1, 2026.
This enforcement power, known as the Power of Substitution, was activated following a public notice issued by the Executive Chairman of the LIRS, Ayodele Subair, on January 21, 2026. Below are the key details regarding the Lagos tax laws and bank accounts:
• Targeted Defaulters:
The LIRS can issue a "substitution notice" to banks, employers, tenants, or any person holding money on behalf of a taxpayer who has failed to settle established tax liabilities.
• Process and Scope:
Banks are legally mandated to notify the LIRS of the account balance of the defaulter and freeze or remit the outstanding amount "without delay". This applies to accounts holding money on behalf of the taxpayer, which in some interpretations has raised concerns about the inclusion of funds held by third parties (such as family or friends) if deemed to be holding funds to evade tax.
• Mandatory TIN and High-Value Transactions:
From January 1, 2026, no resident or non-resident can open or operate a bank account in Nigeria without a Tax Identification Number (TIN). Banks must report to the Federal Inland Revenue Service (FIRS) any bank account (personal or business) that sees a total of ₦5 million or more in monthly transactions (combined inflows/outflows).
• Tax Reporting Threshold:
While high-value accounts are monitored, the 2025 Act clarifies that the automatic reporting for individuals is generally triggered by high-volume transactions (often cited around ₦25 million cumulative monthly) rather than small savings.
• Exemptions, Taxpayer Relief, and Deductions:
Low-Income Exemption — Individuals earning up to ₦800,000 per annum (approx. ₦66,667 monthly) are exempt from personal income tax. Allowable deductions include NHIS (health insurance), pension contributions, and a percentage of rent, which can bring taxable income below the exemption threshold.
• Non-Compliance Substitution Notice Failures and Tax Evasion:
Failure by banks or third parties to comply with a substitution notice from LIRS can attract penalties equivalent to the tax amount, in addition to other legal sanctions. The LIRS has warned that it will pursue maximum penalties, including criminal prosecution for deliberate tax evasion or persistent non-compliance.
• Tax Tracking:
The Lagos State Internal Revenue Service (LIRS) uses a "quiet revolution" of data integration to track self-employed individuals who aren't paying their taxes. In addition, under the Nigeria Tax Administration Act (NTAA) 2025, the agency no longer relies solely on voluntary disclosure; instead, it uses automated digital tracking linked to your core identity.
• Bank Reporting Thresholds:
Starting January 2026, banks are legally mandated to report any personal account with monthly transactions (inflows or outflows) totalling ₦5 million or more to the tax authorities. If these high-value transactions don't match your declared income, it triggers a closer review.
• Unified Identity System:
Your Bank Verification Number (BVN), National Identification Number (NIN), and Tax Identification Number (TIN) are now linked. This allows the LIRS to see every account under your name, whether it’s for a side hustle, freelance work, or market trade.
• Mandatory TIN for Banking:
You cannot open or operate any bank account without a valid TIN. The system automatically generates a TIN for individuals using their NIN, making it impossible to stay "invisible" to the tax net while using formal financial services.
• Third-Party Information:
The LIRS can issue "substitution notices" to people or businesses you deal with; such as tenants, customers, or business partners. If a client pays you a large sum, the LIRS may already have a record of that payment from the client’s own tax filings or bank data.
• Digital Data Matching:
The LIRS e-Tax platform uses biometric-based identifiers to consolidate multiple payer IDs into one record. This technology identifies inconsistencies between your lifestyle (spending/bank activity) and your tax returns.
• Consequence of Unpaid Tax Detection:
If the LIRS identifies a discrepancy, they will serve a Demand Notice. If you fail to pay or object within 30 days, the liability becomes final, and they can legally direct your bank to remit the unpaid tax directly from your account.
• Tracking of Foreign Accounts:
While the LIRS (Lagos State Internal Revenue Service) does not have direct, real-time access to the exact balances in your foreign accounts like PayPal, they have several high-tech ways to "see" that money once it moves or if you are flagged for an audit. Also, under the Nigeria Tax Administration Act (NTAA) 2025, the tax net has expanded to capture offshore and digital earnings.
• The Common Reporting Standard (CRS):
Nigeria is part of a global agreement where over 100 countries (including the UK, Canada, and EU nations) automatically share financial information about each other's citizens with their respective tax authorities.
• Offshore Bank Accounts:
If you have a bank account in a participating country, that country’s tax authority may send reports of your account balance and interest earned to the Federal Inland Revenue Service (FIRS), which then shares relevant data with the LIRS. This system is actively being digitized to ensure "no more flying under the radar" for foreign-held assets.
• Inflow Tracking (The "Naira Trail"):
The LIRS primarily catches foreign earners when they move money into the local economy. For example, if you transfer funds from your PayPal, Payoneer, or a foreign account into your Nigerian account, your bank sees it. If your total monthly transactions hit ₦5 million, the bank must report you to the tax authorities.
• Fintech Partnerships:
In 2026, new partnerships (like the Paga-PayPal integration) allow Nigerians to receive and withdraw funds locally. These local fintechs are regulated by the CBN and must comply with Nigerian tax reporting laws.
• Digital Wealth:
The 2025 Act specifically taxes "profits or gains from transactions in digital or virtual assets". If the LIRS notices a lifestyle that doesn't match your declared local income, they can demand an audit of all your digital wallets and foreign statements.
* Disclaimer: Tax laws can be complex. It is recommended to check with the LIRS or a tax professional for guidance on specific personal or business situations.
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