Nigeria: Late Tax Payment Interest Rate Change Market-Linked

• Nigeria's Federal Government has introduced a new interest rate regime for late tax payments, effective October 1, 2026.
• Interest on Naira tax payments will now be calculated at the Central Bank of Nigeria's Monetary Policy Rate plus one percentage point, with a floor based on 364-day Treasury Bills.
• Foreign currency tax payments will incur interest at the Secured Overnight Financing Rate plus six percentage points.
• The Nigeria Revenue Service will publish these market-linked rates monthly, ensuring transparency and predictability for taxpayers.
• While the interest calculation method changes, the 10% late payment penalty and the tax authorities' power to waive penalties or interest remain in effect.

The new system ensures that delaying tax payments no longer serves as a cheaper alternative to market borrowing, while also providing taxpayers with clear, predictable rates.

Nigeria's Federal Government has announced a significant overhaul of the interest rate calculation for late tax payments, a move set to take effect from October 1, 2026. This new framework, formalized under the Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026, was unveiled by the Federal Ministry of Finance in a press release issued from Abuja on Thursday, September 24, 2026. The directive, issued by Taiwo Oyedele, the Minister of Finance and Coordinating Minister of the Economy, introduces a market-linked methodology for determining interest on overdue taxes.

The core change involves linking the interest rates to prevailing financial market benchmarks, distinguishing between payments made in Naira and those in foreign currency. This new approach is designed to apply uniformly across all tax jurisdictions within Nigeria, encompassing Federal, State, and Federal Capital Territory tax authorities, ensuring a consistent application of the new Nigeria late tax payment interest rate change.

For tax liabilities settled in Naira, the interest rate will now be calculated as the Central Bank of Nigeria’s Monetary Policy Rate (CBN MPR) plus one percentage point. This represents a notable reduction from the previous five-percentage-point spread that was applied. However, a crucial safeguard has been introduced: the rate will not fall below the yield on 364-day Treasury Bills, reflecting the government's own borrowing costs when tax payments are delayed.

Regarding taxes payable in foreign currency, the new order stipulates that interest will be charged at the Secured Overnight Financing Rate (SOFR) plus six percentage points. SOFR serves as the international benchmark for US dollar rates, and the order further clarifies that if SOFR is ever discontinued, its officially designated successor rate will be adopted. To ensure transparency and predictability, the Nigeria Revenue Service (NRS) has been directed to publish the applicable monthly rates on its website by the third business day of each calendar month. Interest will be computed as simple interest on a daily basis, commencing from the original due date until the payment is finally remitted.

The legal foundation for this significant policy shift is rooted in Section 65 of the Nigeria Tax Administration Act, 2025. Minister Taiwo Oyedele emphasized the rationale behind the new Nigeria Tax Administration Order 2026, stating that tax revenue belongs to the public, and late payments often necessitate government borrowing to bridge funding gaps, a cost ultimately borne by all citizens. He articulated that this new order directly ties the cost of late payment to real market rates, preventing the delay of tax payments from becoming a more affordable form of credit than market alternatives.

Furthermore, Oyedele highlighted the importance of certainty, noting that every taxpayer, regardless of whether they are dealing with the Nigeria Revenue Service or a State revenue service, will have advance knowledge of the applicable rate, which will be published monthly and applied consistently. This clarity is expected to simplify compliance and foster a fairer, more predictable tax system. The new rates will apply to all interest accruing from October 1, 2026, including interest on tax obligations that became due prior to this date. However, interest that had already arisen before October 1, 2026, will remain unaffected if it was specifically governed by the rules in force at that time. This new order effectively supersedes the 2017 notice on interest for unpaid taxes and any other preceding directives on the subject.

It is crucial for taxpayers and legal professionals to understand that while the methodology for calculating interest on late payments has changed, certain key provisions remain unaltered. The 10 percent penalty for late payment, as stipulated under Section 65 of the Nigeria Tax Administration Act, 2025, remains fully in effect and is not impacted by this new order.

Moreover, relevant tax authorities continue to possess the power, granted under Section 66 of the Act, to waive either penalties or interest in instances where a good cause can be demonstrated. In light of these changes, the ministry has strongly advised taxpayers to ensure timely filing of returns and payment of applicable taxes. Those with existing outstanding liabilities are encouraged to settle them promptly or proactively engage with the relevant tax authority to discuss their situation.

Lawyers and compliance officers must understand the new, market-linked methodology for calculating interest on late tax payments in Nigeria, effective October 1, 2026. This requires advising clients on the financial implications of delayed tax payments, monitoring the monthly published rates, and understanding that while the interest calculation changes, the 10% penalty and waiver provisions remain.

Source: Original reporting via Punch Newspapers