Nigerian tax authorities clarify ‘power of substitution’

The Nigerian tax authorities have clarified the application of the “power of substitution”, describing it as a carefully controlled mechanism designed to enforce compliance with confirmed tax obligations.

According to the Presidential Fiscal Policy & Tax Reforms Committee, the power allows the tax authority to direct a third party to remit funds belonging to a defaulting taxpayer. “This power is only exercised after all legal and administrative processes, including appeals to the courts, have been exhausted,” the Committee said.

On concerns about misuse, the Committee emphasised that the measure is not arbitrary. “The power of substitution is neither arbitrary nor discretionary. Its use is strictly governed by due process and can only be invoked after all established processes involving enquiries, assessments, objections, final notice, and appeals to the courts have been concluded, and the tax liability has become final and conclusive,” the statement read.

The authorities also noted that low-income earners and small businesses are generally outside the scope of this measure. “Individuals earning the national minimum wage or small businesses operating below applicable taxable thresholds are outside the scope of this measure,” the Committee said.

Regarding its history, the Committee added, “This power is not new. It has been an existing provision of Nigeria’s tax legislation, including section 50 of the repealed Personal Income Tax Act (PITA) and various other tax statutes.”

The Committee further explained the safeguards in place to prevent abuse. “Various legal and administrative safeguards exist to ensure the power is controlled, subject to review, and accountable, including due process, a statutory right for the substitute to object in writing within 30 days, comprehensive appeal rights under the established tax dispute resolution framework, and protection for the taxpayer or appointed agent by the Office of the Tax Ombud,” it said.

Concluding, the Committee stressed that the power of substitution is not punitive. “It exists to ensure that confirmed and lawful tax debts are ultimately paid by those who may choose to ignore their statutory obligations,” the statement said.