FG Cuts Interest Rate on Late Tax Payments

The Federal Government has reduced the interest payable on late tax payments, introducing a new regime that links the charges more closely to prevailing market rates.

The Nigeria Tax Administration Interest on Late Payment of Tax Order, 2026, issued by the Minister of Finance and Coordinating Minister of the Economy, Mr Taiwo Oyedele, takes effect from October 1, 2026.

The order, issued pursuant to Section 65 of the Nigeria Tax Administration Act, 2025, establishes a uniform framework for calculating interest on late tax payments by federal, state and Federal Capital Territory tax authorities.

Under the new regime, interest on tax liabilities denominated in naira will be charged at the Central Bank of Nigeria’s Monetary Policy Rate (MPR) plus one percentage point.

The new formula represents a reduction from the previous five-percentage-point spread.

However, the applicable rate will not fall below the yield on 364-day Treasury Bills, reflecting the government’s cost of borrowing when tax payments are delayed.

For tax liabilities denominated in foreign currencies, the applicable rate will be the Secured Overnight Financing Rate (SOFR) plus six percentage points.

Where SOFR is discontinued, its officially designated successor rate will apply.

The government said the new framework was designed to ensure that delaying tax payments would not become a cheaper source of financing than borrowing from the market.

Under the order, only one interest rate will apply in each calendar month.

The Nigeria Revenue Service has been directed to publish the applicable rates on its website by the third business day of every month, providing taxpayers with greater certainty about the cost of delayed payments.

Explaining the rationale for the reform, Oyedele said tax revenue due to government constituted public funds, adding that delays could force the government to borrow to bridge financing gaps.

“Tax that is due belongs to the public. When it is paid late, Government may have to borrow to fill the gap, and the cost falls on everyone,” the minister said.

He said linking late-payment charges to prevailing market rates would discourage taxpayers from treating unpaid tax liabilities as a cheaper source of credit.

Oyedele also stressed the importance of predictability under the new system.

“Every taxpayer, whether dealing with the Nigeria Revenue Service or a State revenue service, will know the rate in advance, see it published every month, and be charged in the same way,” he said.

New rule covers earlier tax liabilities

The government clarified that the new rates would apply to interest arising from October 1, 2026, including interest on tax liabilities that became due before the effective date.

However, interest that accrued before October 1 would not be affected to the extent that it was governed by the rules in force at the time.

The new order supersedes the 2017 notice on interest on unpaid taxes and other previous notices relating to the issue.

10% late-payment penalty remains

The reform does not affect the statutory 10 per cent penalty for late payment provided under Section 65 of the Nigeria Tax Administration Act.

Tax authorities also retain powers under Section 66 of the Act to waive interest or penalties where a taxpayer demonstrates good cause.

The Finance Ministry urged taxpayers to file their returns and settle their tax obligations promptly, while those with outstanding liabilities were advised to make immediate payments or engage the relevant tax authority.

Implications for taxpayers

The new framework changes the basis for calculating interest on tax arrears by replacing the previous fixed five-percentage-point spread with a narrower MPR-linked margin for naira-denominated liabilities.

With the CBN’s MPR currently at 23 per cent, the statutory formula would produce an interest rate of 24 per cent, subject to the Treasury Bill yield floor.

The monthly publication of applicable rates is also expected to provide greater predictability for businesses and individuals managing their tax obligations and working capital.

While the reform could reduce the interest burden for some taxpayers with late-payment liabilities, the 10 per cent statutory penalty remains applicable as an additional incentive for timely compliance.

The government’s decision to retain a floor linked to the yield on 364-day Treasury Bills also means the interest rate on delayed tax payments cannot decline indefinitely if market rates fall.

The new regime therefore seeks to balance greater certainty and market-based interest charges for taxpayers with the government’s need to discourage the use of outstanding tax liabilities as a source of low-cost financing.

The order takes effect nationwide on October 1, 2026.