FG Cuts Interest Rate on Late Tax Payment from October 1

Reported by Ariajegbe Sylvia Esezobor 

The Federal Government has reduced the interest rate applicable to late payment of tax, with the new regime taking effect from October 1, 2026. The Federal Ministry of Finance disclosed this in a press release issued in Abuja on Thursday, announcing the Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026, issued by the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele.

Under the new order, interest on tax payable in naira will be charged at the Central Bank of Nigeria’s Monetary Policy Rate plus one percentage point, compared with the five-percentage-point spread previously applicable. However, the rate will not fall below the yield on 364-day Treasury Bills. The ministry said the order was issued under Section 65 of the Nigeria Tax Administration Act, 2025, adding that it would apply uniformly across Federal, State and Federal Capital Territory tax authorities.

For tax payable in naira, interest is charged at the Central Bank of Nigeria’s Monetary Policy Rate plus one percentage point. This is a reduction from the spread of five percentage points previously applicable, but the rate will not fall below the yield on 364-day Treasury Bills, which reflects what it costs Government to fund itself when taxes are paid late. For taxes payable in foreign currency, the ministry said interest would be charged at the Secured Overnight Financing Rate, the international benchmark for US dollar rates, plus six percentage points. It added that if SOFR is discontinued, its official successor rate would apply.

The ministry said one rate would apply for each calendar month, with the Nigeria Revenue Service directed to publish the applicable rates on its website by the third business day of every month. According to the ministry, interest would be calculated as simple interest on a daily basis, from the due date until payment. The new rates will apply to interest arising from October 1, 2026, including interest on tax that became due before that date. However, interest that arose before October 1 will not be affected to the extent that it was specifically provided for under the rules in force at the time. The order supersedes the 2017 notice on interest on unpaid taxes and any other earlier notices on the subject, the ministry said. It clarified that the order does not change the 10 per cent penalty for late payment under Section 65 of the Act, and that relevant tax authorities retain the power under Section 66 of the Act to waive penalty or interest where good cause is shown.

Speaking on the order, Oyedele said, “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. This Order ties the cost of late payment to real market rates, so that delaying tax does not become a cheaper form of credit than the market itself.” He added, “Just as important is certainty. 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. Clear rules make compliance easier and support a fair, predictable tax system”.

The ministry advised taxpayers to file their returns and pay applicable taxes on time, while those with outstanding liabilities were advised to settle them promptly or engage the relevant tax authority. Taxpayers were also advised to regularly check the NRS website for the applicable monthly interest rate.

The measure is part of ongoing tax administration reforms aimed at providing clearer and more predictable rules for taxpayers while strengthening compliance and public revenue collection. In June 2025, President Bola Tinubu signed into law four landmark tax reform bills, and the new order represents a further step in the administration’s efforts to overhaul Nigeria’s tax system.

The reduction in the interest spread means that the additional burden on overdue naira tax obligations will now move more closely with monetary policy and government funding conditions. For businesses, the change gives greater certainty in calculating the cost of outstanding tax liabilities, with the applicable rate to be reviewed monthly rather than being fixed indefinitely. The rate for each calendar month will be determined on the last business day of the preceding month and published by the Nigeria Revenue Service by the third business day of the month. Interest will be calculated on a simple-interest basis and accrue daily from the tax due date until payment. The new framework applies uniformly to self-assessment, the NRS, and State and FCT Internal Revenue Services.

The policy is designed to strike a balance between reducing uncertainty for taxpayers and discouraging the use of unpaid tax as a source of cheap financing. By tying the cost of late payment to market rates, the government aims to ensure that delaying tax payments does not become cheaper than borrowing from the market. The monthly publication of rates is also intended to improve transparency and enable taxpayers to determine their potential liabilities in advance.

The order provides transitional arrangements for outstanding tax liabilities. The new rates will apply to interest arising from October 1, 2026, including interest on taxes that became due before that date. However, interest that arose before October 1 will remain governed by the rules applicable at the time, where specifically provided. The order supersedes the 2017 notice on interest on unpaid taxes and other earlier notices on the subject.

The government stressed that the reduction in the interest rate does not affect the statutory 10 per cent penalty for late payment under Section 65 of the Act. Tax authorities also retain the power under Section 66 to waive penalties or interest where good cause is established. The Federal Government urged taxpayers with outstanding liabilities to settle them promptly or engage the relevant tax authority, while businesses and other taxpayers were advised to monitor the NRS website for the applicable monthly interest rate.

The new framework is expected to provide greater certainty for taxpayers regardless of the tax authority handling their liabilities. The uniform application across federal, state and FCT tax authorities is intended to create a consistent and predictable system for all taxpayers. The Nigeria Revenue Service has been directed to publish the applicable rates on its website by the third business day of every month, ensuring that taxpayers have advance knowledge of the rates that will apply to their outstanding obligations. Interest will be calculated on a simple-interest basis daily, beginning from the date the tax becomes due until payment is made. The rates will apply to self-assessment as well as assessments administered by the Nigeria Revenue Service and state and FCT internal revenue services.

For businesses, the reduction in the spread means that the additional interest burden on overdue naira tax obligations will now move more closely with monetary policy and government funding conditions. The monthly review of rates will allow taxpayers to plan their cash flows with greater precision, as they will know in advance the cost of any delay in meeting their tax obligations. The framework also ensures that the cost of late payment remains linked to prevailing market conditions, preventing taxpayers from using unpaid tax as a cheaper source of credit than the market itself.

The Federal Government’s decision to reduce the interest rate on late tax payment is part of a broader effort to strengthen compliance and public revenue collection while providing clearer and more predictable rules for taxpayers. The measure is expected to support a fair and predictable tax system, making it easier for taxpayers to comply with their obligations and reducing the incentive to delay payment. As the new regime takes effect from October 1, 2026, taxpayers are advised to file their returns and pay their taxes on time, and to check the Nigeria Revenue Service website for the applicable monthly interest rates.

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