New Lagos Tax Powers Could Freeze Accounts, Harm Businesses, Doherty Warns

Remi Ladigbolu/

Former Lagos governorship candidate and chartered accountant, Funso Doherty, has warned that new tax enforcement powers being emphasised by the Lagos State Internal Revenue Service could allow bank accounts to be frozen and disrupt business operations if applied without clear rules and safeguards.

Doherty disclosed that he has written formally to the Chairman of the Lagos State Internal Revenue Service, as well as to the Governor of the Central Bank of Nigeria and the Director General of the Securities and Exchange Commission, following a recent public notice by the tax authority highlighting its “powers of substitution” under Nigeria’s amended tax laws.

Under the powers of substitution, tax authorities are permitted to appoint third parties such as banks, employers or business partners to recover alleged tax debts on their behalf.

In practical terms, this can involve directing a bank to deduct funds from a customer’s account or compelling a third party to settle a tax liability directly, without the taxpayer making the payment themselves.

Doherty cautioned that while the power exists in law, its use must be clearly defined, proportionate and subject to strict safeguards.

In his letter to the LIRS chairman, he warned that relying on broad statutory language without detailed operational guidance could lead to arbitrary enforcement and legal uncertainty.

“The exercise of the power of substitution cannot be left to broad statutory wording alone,” he wrote, adding that unclear application “creates significant uncertainty for taxpayers and third parties”.

He said the public emphasis on enforcement, without corresponding clarity on procedure and protections, risks undermining confidence in the tax system rather than improving compliance.

According to him, sudden or poorly explained actions could expose businesses to financial disruption and discourage investment.

In a separate letter to the Central Bank of Nigeria, Doherty raised concerns about the potential impact on banks.

He warned that financial institutions could be placed in difficult legal and regulatory positions if required to act on substitution directives without clear standards, timelines or judicial oversight.

He said banks risk being caught between tax enforcement demands and their duties to customers, regulators and the courts, a situation that could weaken trust in the financial system.

Doherty made similar representations to the Securities and Exchange Commission, cautioning that substitution actions involving capital market operators could unsettle investors and disrupt market stability if not properly coordinated.

The intervention comes amid wider debate over Nigeria’s reformed tax framework, which expanded enforcement tools available to revenue authorities as part of efforts to boost internally generated revenue and curb tax evasion.

While the Lagos State Internal Revenue Service has argued that stronger enforcement powers are necessary to improve compliance, critics say aggressive application without transparency could harm Lagos’ standing as Nigeria’s commercial and financial centre.

As of the time of reporting, the LIRS, the CBN and the SEC had not publicly responded to Doherty’s letters.

However, the issue has renewed calls from tax professionals and private sector stakeholders for clear guidelines, stakeholder engagement and strong safeguards in the use of substitution powers under the new tax regime.