FG cuts late-tax interest, links rate to CBN policy rate

By Onu Okorie

Federal Government has reduced the interest rate applicable to overdue tax payments, replacing the previous fixed formula with a market-linked system that will take effect from October 1, 2026.
Under the Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026, interest on outstanding naira-denominated tax will be calculated at the Central Bank of Nigeria’s Monetary Policy Rate (MPR) plus one percentage point, compared with the previous five-percentage-point spread.
The new framework was issued by the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, pursuant to Section 65 of the Nigeria Tax Administration Act, 2025.
With the CBN’s MPR currently at 23 per cent following its September 2026 decision, the applicable interest rate would be 24 per cent, subject to the Treasury Bill floor prescribed under the new Order.
The reform establishes a uniform system for federal, state and Federal Capital Territory tax authorities, replacing the 2017 notice and other earlier notices governing interest on unpaid taxes.
Rate to be published monthly
Under the new arrangement, taxpayers will no longer have to contend with an uncertain or separately determined interest rate.
Only one interest rate will apply in each calendar month, with the Nigeria Revenue Service required to publish the applicable rate on its website by the third business day of every month.
The government said the arrangement would give taxpayers greater certainty by allowing them to know the financial cost of delaying their tax obligations in advance.
Oyedele said the reform was also intended to prevent taxpayers from treating unpaid taxes as a cheaper source of financing than borrowing from the market.
“Tax that is due belongs to the public,” the minister said, explaining that delayed tax payments could force government to borrow to finance public expenditure.
He said the uniform framework would ensure that taxpayers dealing with different tax authorities would know the applicable rate and face the same basic approach to interest charges.
Foreign currency liabilities
For tax liabilities denominated in foreign currencies, the new Order provides for interest at the Secured Overnight Financing Rate (SOFR) plus six percentage points.
Where SOFR is discontinued, the framework provides for its official successor to be used.
The naira rate, meanwhile, cannot fall below the yield on 364-day Treasury Bills, creating a floor for the interest payable on delayed tax obligations even if market rates decline substantially.
Earlier tax liabilities included
The new formula will apply to interest arising from October 1, 2026, including interest on tax liabilities that became due before the commencement date.
However, interest that arose before October 1 will remain governed by the rules applicable at the time where those rules specifically cover it.
The new Order consequently marks the formal replacement of the 2017 framework for interest on unpaid taxes.
10% late-payment penalty remains
Despite the reduction in the interest spread, taxpayers will still face the statutory 10 per cent penalty for late payment under Section 65 of the Nigeria Tax Administration Act.
The new Order does not alter the penalty.
Tax authorities also retain powers under Section 66 of the Act to waive interest or penalties where a taxpayer can demonstrate good cause.
The distinction means that while the government has reduced the interest component of late payment, the financial consequences of failing to pay taxes when due remain.
Businesses to assess cost of delayed payment
The new formula could provide some relief to businesses managing working capital, particularly where the market-linked rate is lower than what would have applied under the previous fixed spread.
At the current 23 per cent MPR, however, the initial naira interest rate under the new formula would stand at 24 per cent, subject to the Treasury Bill floor.
The government said the floor was designed to ensure that the cost of delaying tax payments does not continue falling indefinitely as market interest rates decline.
The Finance Ministry urged taxpayers to file their returns and settle tax liabilities on time, while advising those with outstanding obligations to make payment promptly or engage the relevant tax authority.
The new framework therefore combines a lower spread over the benchmark policy rate with a statutory penalty, monthly publication of the applicable rate and a minimum-rate provision, marking a shift from the fixed-rate regime that had governed late-tax interest since 2017.