Nigeria: New Tax Administration Order 2026 Links Interest to Market Rates

• Effective October 1, 2026, Nigeria will link interest on late tax payments to market rates via the Nigeria Tax Administration (Interest on Late Payment of Tax) Order 2026.
• Naira-denominated tax interest will be the CBN MPR plus one percentage point, with a minimum tied to 364-day Treasury Bill yields.
• Foreign currency tax interest will be SOFR plus six percentage points, with a successor rate provision.
• The Nigeria Revenue Service will publish monthly rates, which will apply uniformly across all federal, state, and FCT tax authorities.
• This framework aims to provide certainty for taxpayers and deter late payments by aligning interest costs with actual market borrowing rates.

By tying the cost of late payment to real market rates, the government aims to eliminate any incentive for taxpayers to use delayed tax remittances as a form of cheaper credit compared to commercial market alternatives.

The Federal Government of Nigeria has introduced a significant overhaul to the calculation of interest on overdue tax payments, effective October 1, 2026. This new approach, formalized under the Nigeria Tax Administration (Interest on Late Payment of Tax) Order 2026, directly links interest charges to prevailing market borrowing costs. The move aims to discourage delayed remittances by ensuring that deferring tax payments is no longer a more affordable option than market-rate credit.

Issued by the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, the order establishes distinct interest rate mechanisms for naira and foreign currency denominated tax liabilities. For taxes payable in naira, the new framework mandates an interest rate set at the Central Bank of Nigeria’s Monetary Policy Rate (MPR) plus one percentage point. This rate, however, will not fall below a minimum tied to the yield on 364-day Treasury Bills, reflecting the government's cost of funding itself when tax revenues are delayed. Notably, this represents a reduction in the additional margin above the MPR, which was previously five percentage points.

For tax obligations denominated in foreign currency, the interest rate will be calculated using the Secured Overnight Financing Rate (SOFR), an international benchmark for US dollar rates, augmented by six percentage points. Should SOFR be discontinued, its officially designated successor rate will automatically apply. This comprehensive update supersedes the 2017 notice on interest for unpaid taxes and all prior related directives, establishing a unified and transparent system across the nation.

The Nigeria Tax Administration (Interest on Late Payment of Tax) Order 2026 is issued pursuant to Section 65 of the Nigeria Tax Administration Act 2025, providing a clear legal foundation for its implementation. This framework is designed for uniform application across all tax jurisdictions within Nigeria, encompassing federal, state, and Federal Capital Territory tax authorities. This ensures consistency in how late payment interest is assessed, regardless of the specific revenue service involved.

Operationally, a single interest rate will be determined for each calendar month. This rate will be established on the last business day of the preceding month, offering predictability to taxpayers. The Nigeria Revenue Service (NRS) has been tasked with publishing these applicable rates on its official website by the third business day of every month. Interest will be computed daily on a simple-interest basis, starting from the date the tax becomes due until the payment is fully settled. These rates will apply to both self-assessment taxes and other tax obligations administered by the NRS, as well as state and FCT internal revenue services.

It is important to note that while the new rates apply to interest accruing from October 1, 2026, including on taxes that became due before this date, any interest accrued prior to October 1, 2026, will remain subject to the rules that were in effect at that specific time. The order explicitly states that it does not alter the existing 10 percent penalty for late payment, which is stipulated under Section 65 of the Act. Furthermore, relevant tax authorities retain their powers under Section 66 to waive penalties or interest in instances where a legitimate cause can be demonstrated.

The rationale behind linking interest charges to market rates is multifaceted, as articulated by Minister Taiwo Oyedele. He emphasized that taxes are public funds, and their delayed payment often necessitates government borrowing to cover revenue shortfalls, thereby imposing costs on all citizens. By tying the cost of late payment to real market rates, the government aims to eliminate any incentive for taxpayers to use delayed tax remittances as a form of cheaper credit compared to commercial market alternatives.

Beyond addressing government borrowing costs, a primary objective of the new framework is to provide taxpayers with enhanced certainty regarding the financial consequences of late payments. Minister Oyedele highlighted that every taxpayer, whether dealing with the Nigeria Revenue Service or a state revenue service, will have advance knowledge of the applicable rate, see it published monthly, and be charged consistently. This transparency is expected to foster a clearer understanding of obligations, making compliance easier and supporting a more predictable and equitable tax system.

In light of these changes, the Federal Ministry of Finance has advised taxpayers to ensure timely filing of returns and payment of applicable taxes. Those with existing outstanding liabilities are strongly encouraged to settle them promptly or engage with the relevant tax authorities to understand their options, thereby mitigating the impact of the new market-linked interest rates.

Lawyers and compliance officers must understand the new market-linked interest calculation for late tax payments, effective October 1, 2026, to accurately advise clients on compliance strategies, potential liabilities, and the financial implications of delayed tax remittances in Nigeria. They should also monitor the monthly published rates by the Nigeria Revenue Service to ensure clients are aware of the precise costs of non-compliance.

Source: Original reporting via Punch Newspapers