Lagos State Internal Revenue Service (LIRS) chairman has warned that contrived deals will no longer shield taxpayers from liabilities. This was stated in a public notice signed by LIRS Executive Chairman Ayodele Subair on 21 January 2026.
According to LIRS, businesses and individuals in Lagos are warned. Effective from 1 January, “artificial or fictitious transactions” designed to reduce tax will be disregarded. This falls under the newly gazetted Nigeria Tax Administration Act (NTAA) 2025.
The LIRS notice stressed a warning. Any taxpayer found using sham sales, transfers, or write-offs to cut their tax will face extra assessments. They will also undergo investigations and get penalties.
Lagos is signalling a tougher enforcement era. Firms can’t easily hide behind inter-company deals that may be contrived. Businesses must now substantiate every transaction as if under audit.
The notice cited Section 46 of NTAA 2025. This section empowers Lagos tax authorities to ignore any disposition “not in fact given effect to.” Authorities can also ignore any transaction that reduces tax if it is “artificial or fictitious.”
In practice, this means LIRS can unpick and recharacterise deals that have no genuine commercial substance.
The law explicitly targets related-party transactions. These are deals between “connected” persons or companies. If these deals are not on fair arm’s-length terms, they can be deemed artificial.
For example, if a subsidiary “sells” assets to its parent at below-market value solely to shift profits, LIRS can cancel the transaction. They can then reassess the true tax owed.
Any taxpayer subject to such a direction may be hit with the full correct tax bill. They may also face penalties. But, they still retain the normal right to appeal.
LIRS emphasised that it has broad power to “disregard, adjust, or recast” any arrangement primarily aimed at tax reduction. It warned that bogus transactions invite audits and penalties under the NTAA 2025.
In practical terms, businesses in Lagos are advised to ensure “all transactions are genuine, commercially driven, and properly documented”.
The LIRS specifically reminded all taxpayers to maintain full records of each deal’s legitimacy. Taxpayers should disclose any connected-party relationships. They must stick to arm’s-length pricing for related-party dealings.
The notice even invokes Nigeria’s 2018 transfer‑pricing rules. It states that LIRS can demand documentation for transactions between companies and their shareholders. These transactions can include loans or asset write-offs. This is to verify market-based pricing.
Any gaps or misstatements can now attract stiff administrative fines under the new act.
Lagos business and tax experts have mixed reactions. The Lagos Chamber of Commerce and Industry (LCCI) welcomed the unified tax framework but urged clarity and fairness in implementation.
LCCI President Leye Kupoluyi noted that effective reform should “simplify compliance.” It should also “reduce the burden on productive enterprises.” Additionally, it should “broaden the tax base without stifling growth.” He urged the Federal and State authorities to roll out the new rules transparently.
Some analysts point out that Nigeria’s statutes have long prohibited “artificial or fictitious transactions.” Now, the NTAA explicitly consolidates those anti-avoidance provisions for all taxes, both federal and state.
Many tax advisers see Section 46 as a general anti-avoidance rule (GAAR). It is akin to provisions in other countries. The rule operates as a last resort to strike down deals done solely for tax benefits.
In short, what Lagos is doing aligns with a global trend. Jurisdictions from the UK and South Africa to Canada and Australia have GAARs. These are used to neutralise “blatant, artificial or contrived arrangements” made just to cut tax.
Meanwhile LIRS has reminded businesses that compliance is mandatory. Mr Subair has pointed out that timely and accurate filing of tax returns is a legal duty. Failing to do so attracts automatic penalties.
In a recent statement he urged employers to “prioritise the timely filing” of annual returns. He stressed that early, correct filings “not only ensure adherence to the law… but also support effective revenue tracking.” This is vital for Lagos’s budgeting.
This shows Lagos will closely watch not just contrived deals but every tax return. The LIRS now requires all employers in the state to use its e-filing platform. Manual filing is banned. This makes compliance easier to track.
Stakeholders say this tech upgrade is part of a broader attempt to plug loopholes. Strict deadline enforcement also aims to curb multiple taxation in the state.
Comparisons: Lagos’ notice makes clear that this crackdown is part of wider changes under Nigeria’s sweeping tax reform. The NTAA 2025 takes effect on 1 January 2026. It consolidates previous provisions. It grants uniform powers to federal and state tax authorities alike.
Notably, a 2018 Joint Tax Board agreement already encouraged cooperation between the Federal Inland Revenue Service (FIRS) and state agencies. Lagos appears to be the first state to publicly invoke the new rules, but the entire framework is national.
Indeed, Lagos leads Nigeria in revenue generation – its IGR in 2023 was about ₦815.86 billion (vastly outpacing the next-highest states, e.g. Rivers at ₦195.4 billion ) – so the stakes are high. It is expected that other major states will follow Lagos’ example.
For context, the federal FIRS has already begun targeting profit-shifting. They do this through transfer pricing audits. FIRS will similarly treat synthetic intra-group deals as illegitimate.
Both federal and state reforms mirror OECD/BEPS guidance, insisting on “arm’s-length” terms and full disclosures for related‑party dealings.
Internationally, many advanced economies have used GAAR or similar rules for years. The UK’s GAAR has been in force since 2013. It allows HMRC to counter any abusive tax avoidance scheme. Canada’s GAAR, implemented in 1988, serves a similar role.
In India and South Africa, anti-avoidance clauses can override transactions that are “blatant” tax-avoidance ploys. The NTAA brings Nigeria in line with these practices.
The IMF notes a GAAR’s purpose is to strike down arrangements “so blatant, artificial or contrived that it is only explicable by the desire to obtain a… tax benefit.” This language matches Lagos’s warning.
Under NTAA, Lagos (and other states) can disregard any artifice. This is much like how HMRC deals with UK disclosure of tax avoidance schemes. The difference is that until now, Nigerian state tax laws were far less explicit.
Outlook: In practical terms, corporate and individual taxpayers in Lagos must review their books. Any past inter-company loans, transfers, or reorganisations done partly to minimise tax are now at risk of re-examination.
Expert analysts advise firms to ensure full documentation – contracts, market valuations, board resolutions – underpin every transaction. Tax lawyers say that while genuine commercial arrangements remain entirely lawful, any misrepresentation is now a trigger for audit.
LIRS’s move suggests a zero‑tolerance posture. Transparent, arm’s-length dealings will be rewarded without any fuss. Dubious schemes may lead not only to tax reassessments but also hefty fines and reputational damage.
In sum, the Lagos warning underscores a new enforcement era under the NTAA 2025. In this era, the substance of a deal prevails over form. Tax savings must also survive the scrutiny of a competitive market test.
As tax specialists note, this reflects an international shift toward fairness and transparency in corporate taxation. Lagos’s message is clear – in Nigeria’s commercial hub, there will be no hiding behind artificial structures.
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