Tax Recovery Through Third Parties: Understanding Section 60 of the Nigerian Tax Administration Act

TAX RECOVERY THROUGH THIRD PARTIES: Understanding Section 60 of the Nigerian Tax Administration Act

Tax enforcement is not limited to pursuing a defaulting taxpayer directly. Under Section 60 of the Nigerian Tax Administration Act, the relevant tax authority is empowered to recover outstanding tax liabilities through third parties who hold, or are expected to hold, money, funds or assets belonging to the taxpayer. This mechanism strengthens the tax authority’s recovery powers while placing corresponding legal obligations on appointed agents.

Section 60(1) of the Nigerian Tax Administration Act authorizes the relevant tax authority to appoint a person as an agent of a taxable person by written notice where tax has become due and payable but the taxpayer has failed or refused to pay, and the proposed agent possesses or is expected to possess the taxpayer’s money, funds or assets. The provision creates a legal avenue for tax recovery through third parties, including persons or entities holding funds that could be applied towards the taxpayer’s outstanding obligations.

The appointment is not automatic, it requires a written notice from the relevant tax authority. Consequently, the power is directed at recovering an existing tax liability rather than imposing an entirely new tax obligation on the appointed agent.

Section 60(2) of NTAA further provides that, an appointed agent is required to pay the outstanding tax from the money, funds or assets of the taxpayer held by the agent. This obligation places the agent in a position of responsibility within the tax recovery process. The agent must therefore take the notice seriously and appropriately address the funds or assets to which it relates.

More significantly, Section 60(3) of NTAA provides that where the appointed agent defaults, enforcement and recovery measures under the Act may be applied against the agent as though the agent were originally liable. These measures include the power to distrain the relevant money, funds or assets. This provision underscores the potential consequences of failing to comply with a valid agency notice and highlights the importance of prompt legal and tax advice upon receipt of such a notice.

Section 60(4) of NTAA further empowers the relevant tax authority to require any person to provide information concerning money, funds or other assets held for, or due to, another person. This information-gathering power complements the appointment mechanism by enabling the authority to identify assets or funds that may be available for tax recovery. It also reinforces the need for persons and businesses holding funds on behalf of third parties to maintain accurate financial records and respond appropriately to lawful statutory demands.

Importantly, Section 60(5) of NTAA provides that the Act’s provisions on objections and appeals apply to a notice issued under the section as though the notice were an assessment or demand notice..

Conclusion

Section 60 establishes an important tax recovery mechanism by extending the reach of enforcement beyond the defaulting taxpayer to third parties holding the taxpayer’s funds or assets. While the provision enhances the effectiveness of tax collection, it also imposes substantial compliance responsibilities on appointed agents. Businesses, financial institutions and other persons who hold funds for third parties should understand the implications of receiving a tax agency notice and seek appropriate professional advice to ensure compliance while preserving their statutory rights.