The Presidential Fiscal Policy and Tax Reforms Committee has clarified that banks in Nigeria cannot deduct taxes directly from customers’ accounts without their explicit consent.
Mr. Taiwo Oyedele, Chairman of the Committee, made the statement while responding to media reports suggesting that the Lagos State Government intended to debit personal accounts of taxpayers who fail to settle their taxes.
Oyedele described the reports as misleading and emphasized that they misrepresented how the law functions. He explained that Nigerian tax law does not grant authorities the power to directly take money from individuals’ bank accounts.
Instead, he noted, the law allows for what is known as the “power of substitution,” a controlled tax recovery mechanism that differs entirely from directly debiting accounts.
He said:
“The power of substitution enables the tax authority to request a third party to pay money owed by a taxpayer who has refused to settle a confirmed and legally due tax debt. This can only happen after all legal and administrative steps—including objections and court appeals—have been exhausted.”
Oyedele stressed that this power is not arbitrary. It is strictly regulated and applied only after a detailed process that includes enquiries, assessments, formal notices, and appeal rights.
He further reassured low-income earners and small businesses that they are generally not affected by the power of substitution, noting that only taxpayers with significant, confirmed tax debts are subject to such measures under the new tax laws.
“The power of substitution only applies to large, confirmed debts. Most small businesses and individuals earning the national minimum wage fall below the taxable threshold and are therefore not impacted,” he said.
Oyedele also explained that similar mechanisms are used globally, where tax authorities recover unpaid taxes through third parties, such as garnishment or third-party payment notices. The measure ensures fairness by preventing non-compliant taxpayers from leaving honest taxpayers to shoulder the tax burden.
He outlined the legal conditions for applying the power of substitution:
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The tax debt must be fully established, final, and legally due.
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The taxpayer must have failed to pay within the specified time.
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The third party identified as a “substitute” must hold money owed to the taxpayer or by the taxpayer.
“When a substitute is appointed, they are notified and have the right to either comply or formally object in writing within 30 days, providing reasons for their objection. Full rights of appeal are also available under the tax dispute system,” Oyedele added.
The Committee Chairman emphasized that multiple safeguards exist to prevent misuse, including:
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Due process in tax assessment
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The substitute’s right to object
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Appeal rights
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Oversight by the Office of the Tax Ombud
“The power of substitution is not a punitive measure or a tool for routine enforcement. It is carefully regulated to ensure fairness in the tax system, so that confirmed and lawful tax debts cannot be ignored,” Oyedele concluded.
He urged Nigerians to rely on accurate information and not be misled by reports suggesting that tax authorities can withdraw funds from bank accounts without following proper legal procedures.
