Power of Substitution in Tax Law Not New, Says Oyedele

Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, has said the widely discussed “power of substitution” in Nigeria’s tax framework is neither new nor unusual, noting that it has long existed in the law.

Oyedele made the clarification during a webinar on the implementation of the Tax Reform Acts for HR professionals, payroll managers, CFOs and tax managers, organised in collaboration with the Joint Revenue Board.

Speaking during the session, he explained that the power of substitution enables tax authorities to act when taxpayers fail to file returns or when declared income does not align with available information such as bank transactions, property purchases or foreign travel records.

According to him, misconceptions around the provision stem from a lack of awareness. He said the power has been part of tax legislation for decades and is a standard practice globally, though it may be referred to by different names such as garnishment orders or third-party agency in other jurisdictions.

Oyedele outlined the procedure, noting that tax administration begins with self-assessment. If a taxpayer fails to file returns or provides information that conflicts with verified data, the tax authority is required to notify the individual and request an explanation. Where no response is provided or the explanation is unsatisfactory, the authority may issue an assessment based on available information, which the taxpayer has the right to challenge.

He explained that taxpayers can object to an assessment within a specified period, and the tax authority is obliged to review the objection and amend the assessment where necessary. If disagreement persists, the matter can be taken to the tax tribunal, and subsequently to higher courts, including the High Court, Court of Appeal and, in some cases, the Supreme Court, before any tax liability becomes final and enforceable.

Oyedele stressed that only after all appeal processes are exhausted and a taxpayer still fails to pay within the stipulated time can the tax authority direct third parties, including banks holding the taxpayer’s funds, to remit the owed amount to the government.

He dismissed claims that tax authorities can arbitrarily debit bank accounts, insisting the process cannot occur without the taxpayer’s knowledge, as multiple notices and opportunities to respond are provided.

He added that the new tax legislation strengthens safeguards against abuse by expanding access to dispute-resolution mechanisms such as tax tribunals.

On compliance, Oyedele urged employers to file annual tax returns for their employees and encouraged individuals to submit their self-assessments, noting that compliance levels remain extremely low across many states. He emphasised that employees are still required to file returns even if taxes have already been deducted by their employers.

He also said businesses benefiting from tax incentives must now disclose such incentives in their tax filings.

Oyedele concluded that successful implementation of the reforms would benefit individuals, businesses and investors alike, adding that households would gain from lower income taxes and the removal of VAT on basic consumption items.