Nigeria’s ongoing tax reform agenda has triggered renewed controversy following a notice by the Lagos Internal Revenue Service (LIRS) asserting statutory powers to recover unpaid taxes through direct bank debit. The development has intensified public concern over the scope of enforcement under the new tax framework and raised questions about due process, financial stability, and public trust.
In a notice seen over the weekend, LIRS cited Section 60 of the Nigeria Tax Administration Act as the legal basis to “recoup unpaid tax through direct bank debit.” The statement immediately sparked debate, particularly as neither the Nigeria Revenue Service nor the Presidential Fiscal Policy and Tax Reforms Committee issued an outright denial of the claim.
Official Clarification—And Remaining Gaps
Responding to inquiries, Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, referred journalists to an explanation he published on X. Oyedele described the measure as a “last resort” known as the power of substitution—a recovery mechanism allowing tax authorities to direct a third party, such as a bank, to remit funds belonging to a defaulting taxpayer.
He stressed that the mechanism applies only to a “final, established, and unpaid tax liability” and can be invoked only after all legal and administrative processes, including court appeals, have been exhausted. He also rejected claims of arbitrariness, stating that the power is governed by due process.
However, the clarification appeared to fall short of earlier assurances attributed to Oyedele that the new tax laws did not empower any level of government to debit personal accounts. That perceived inconsistency has become a focal point for critics, who argue that mixed messaging risks undermining confidence in the reforms.
Expert Concerns Over Confidence and Financial Inclusion
Economists and financial experts have voiced caution. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), said the conflicting positions require urgent reconciliation to avoid fear and confusion.
Yusuf warned that apprehension over direct debits has already triggered panic reactions in some quarters, including reports of individuals withdrawing funds from banks. He argued that such outcomes point to a communication failure that could derail the reform’s objectives.
A key issue, Yusuf noted, is ownership of funds in bank accounts. Money held in an account may include third-party funds—such as payments from contractors or suppliers—raising risks of wrongful debits. Without clear safeguards and judicial oversight, he said, enforcement could erode public trust, discourage formal banking, and weaken financial inclusion by pushing people to hold cash or convert savings into foreign currencies.
He emphasized that any extreme enforcement should be anchored on explicit court authorization, describing judicial oversight as essential for legitimacy in sensitive matters involving private property.
Banking Sector Alarm Bells
Echoing those concerns, Okechukwu Unegbu, a former president of the Chartered Institute of Bankers of Nigeria, described the prospect of direct debits as dangerous if not tightly constrained. He questioned the legal basis for debiting accounts without clear due process and warned that unchecked practices could damage the credibility of both the tax system and the financial sector.
Unegbu cautioned that long-term instability could follow if depositors lose confidence in the sanctity of their accounts, urging authorities to proceed carefully and within clearly defined legal boundaries.
Broader Context: Reform Under Pressure
The controversy lands amid a broader push by the federal and state governments to widen the tax net and boost non-oil revenues. While reform advocates argue that stronger enforcement is necessary to curb evasion and improve compliance, critics counter that coercive tools—especially when poorly explained—risk public backlash.
The debate is further complicated by earlier claims that the gazetted versions of some new tax laws differed from publicized drafts, adding to skepticism about transparency and process. Against this backdrop, the LIRS notice has amplified concerns that enforcement may be racing ahead of public buy-in.
Key Implications
- Rule of Law and Due Process: Clear thresholds and court oversight are critical to prevent abuse and protect third-party funds.
- Public Trust: Conflicting official messages risk eroding confidence in reform and compliance.
- Financial Stability: Fear-driven withdrawals and cash hoarding could weaken the banking system and reverse gains in financial inclusion.
- Reform Credibility: Effective tax reform depends as much on communication and fairness as on enforcement power.
What Happens Next
Authorities face mounting pressure to issue unambiguous guidance that reconciles enforcement powers with earlier assurances, clarifies safeguards, and outlines the role of the courts. Without that clarity, experts warn the reform agenda could stall—undermined by fear rather than strengthened by compliance.
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