How Nigeria Plans to Use Banks and Fintechs to Recover Tax Debt
From 2026, banks, fintechs, and other financial institutions will play a direct role in recovering unpaid taxes on behalf of Nigeria’s tax authority. This shift follows the implementation of the Nigeria Tax Administration Act, 2025, which significantly expands the enforcement powers of the country’s newly restructured tax system.
The law marks the operational phase of Nigeria’s most extensive tax reforms in decades. The Federal Inland Revenue Service has been replaced by the Nigeria Revenue Service, electronic transfer levies have given way to stamp duties borne by senders, and tax policy has moved decisively from reform to execution.
At the centre of the new framework is a provision that allows the tax authority to outsource debt recovery to third parties. Once all statutory recovery processes have been exhausted, banks and fintechs can be mandated to recover outstanding tax liabilities directly from accounts and transaction channels under their control.
Turning Financial Institutions Into Recovery Agents
Under the Act, the Nigeria Revenue Service is empowered to assign unpaid tax debts, either in full or in part, to accredited third parties.
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 or regulations issued by the Service, the law states.
Third parties are broadly defined and include banks, other financial institutions, debt recovery practitioners, and any individual or entity accredited by the tax authority.
While the approach appears new, Nigeria has experimented with similar arrangements in the past. In 2018, the former Federal Inland Revenue Service and some State Internal Revenue Services appointed commercial banks as agents to recover taxes allegedly owed by customers. That effort, grounded in provisions allowing tax authorities to appoint agents for tax collection, sparked widespread controversy and legal uncertainty.
The 2025 Act attempts to resolve those ambiguities by providing clearer statutory authority and a structured process for third-party recovery. In effect, the law allows tax enforcement to move closer to where money is actually held.
Nigeria’s approach mirrors practices already in use in other jurisdictions. In 2025, the United Kingdom’s HM Revenue and Customs relaunched its programme, allowing it to recover unpaid taxes directly from bank accounts.
Under the UK system, the power applies to tax debts of £1,000 or more and is subject to strict procedural safeguards. HMRC only intervenes after appeal rights have been exhausted and repeated attempts to contact the taxpayer have failed. Affected individuals also receive a face-to-face visit from HMRC officials, during which alternatives such as payment plans are discussed.
The renewed enforcement push comes as unpaid taxes in the UK stand at £42.8 billion.
Nigeria’s framework borrows from this model but does not spell out equivalent safeguards in comparable detail.
Nigeria’s Enforcement Push and Rising Penalties
The new tax regime is part of a broader strategy to increase Nigeria’s tax-to-GDP ratio to 18 per cent by 2027, up from under 10 per cent. The reforms also widen the tax base, drawing more individuals, particularly digital and remote workers, into the formal system.
Failure to comply carries escalating penalties. Taxpayers who do not register with the Nigeria Revenue Service face a ₦50,000 fine in the first month and ₦25,000 for each additional month. Failure to file tax returns attracts a ₦100,000 fine in the first month and ₦50,000 monthly thereafter. Unpaid taxes incur a 10 per cent penalty, alongside interest charged at the prevailing monetary policy rate.
Beyond financial penalties, the Act introduces the ability to recover outstanding tax liabilities directly through third-party institutions once all statutory recovery measures have been exhausted.
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What the Law Defines as Tax Debt
The Act adopts a broad definition of tax debt. It includes taxes unpaid after 30 days, unpaid assessed taxes along with penalties and interest after the issuance of notices, under-assessed taxes, and tax reliefs or refunds paid in error.
Taxpayers found to have been under-assessed are required to settle the shortfall upon demand. Those who received erroneous repayments must return the funds.
However, the Nigeria Revenue Service can only assign a tax debt to a third party after completing all legal recovery steps. These include issuing notices, making formal payment demands, and pursuing other enforcement actions. The debt must also be significant in value and outstanding for a period the authority considers appropriate.
Affected taxpayers must be notified in writing and informed that a third party has been assigned to recover the debt. The tax authority retains the right to revoke the assignment and resume recovery directly.
The law imposes a six-year limitation period for recovering tax debts arising from under-assessment or erroneous repayments, except in cases where the error resulted from false statements or untrue documentation.
Nigeria aims to generate at least ₦17.85 trillion in tax and customs revenue in 2026, a target that depends heavily on technology and data integration. As part of this strategy, the Nigeria Revenue Service will connect its systems with transaction-heavy institutions such as the Nigeria Inter-Bank Settlement System, giving it deeper visibility into financial flows.
With bank accounts increasingly linked to tax identification numbers, the government is narrowing pathways for evasion and aligning enforcement with actual points of financial activity. Yet while the framework draws from international best practices, it remains largely silent on oversight mechanisms. The law does not clearly outline how third-party recovery actions will be supervised, restricted, or challenged, raising questions about safeguards as enforcement shifts into private financial infrastructure.
