Nigeria's landmark tax overhaul, the Nigeria Tax Administration Act, 2025, has taken full effect, introducing a transformative and controversial enforcement mechanism. From 2026, banks, fintechs, and other accredited financial institutions will be empowered to act as third-party agents for the Nigeria Revenue Service (NRS), directly recovering unpaid taxes from debtor accounts once statutory procedures are exhausted.

A Shift in Enforcement Power

The new law provides clear statutory backing for the NRS to outsource tax debt recovery, a move designed to boost compliance by accessing funds directly where they are held. This marks a significant shift from the previous, more controversial attempts under the defunct Federal Inland Revenue Service (FIRS). The NRS, which has replaced the FIRS, gains deeper visibility into financial flows through planned integrations with systems like the Nigeria Inter-Bank Settlement System Plc (NIBSS).

“The relevant tax authority may assign outstanding tax debts in whole or in part, to an accredited third party who shall assume responsibility for recovering the tax debts in accordance with the provisions of this Act,” the law states.

Global Precedents and Local Ambitions

Nigeria is following a path similar to other nations, notably the United Kingdom, where HM Revenue & Customs (HMRC) recovers debts directly from bank accounts with specific safeguards. Nigeria's reforms aim to radically increase the nation's tax-to-GDP ratio from under 10% to 18% by 2027. The government projects generating at least ₦17.85 trillion ($12.48 billion) in tax and customs revenue in 2026, a goal heavily reliant on this enhanced, tech-driven enforcement.

Rigorous Penalties and Broad Debt Definition

The Act imposes strict penalties for non-compliance, including fines for failure to register or file returns, plus a 10% penalty and interest on unpaid taxes. Tax debt is defined broadly to include unpaid taxes after 30 days, under-assessed amounts, and erroneously repaid tax reliefs. Third-party recovery is only permitted after all legal recovery steps are exhausted, the debt is of significant value, and the taxpayer is notified in writing.

Oversight Concerns and Legal Limits

While the law borrows from international models, it lacks detailed provisions on restraining, supervising, or challenging third-party recovery actions, raising fresh concerns about oversight and citizen safeguards. The Act does place a six-year limit on recovering certain debts, unless fraud is involved. The NRS retains the right to revoke any assignment and resume recovery itself.

This policy represents a fundamental change in the relationship between financial institutions, the state, and taxpayers, positioning banks and fintechs as direct extensions of the tax authority's enforcement arm.