By Anita Dennis
The federal government is changing the way interest on late tax payments is calculated, linking the cost more closely to prevailing market rates while seeking greater certainty for taxpayers across the country.
From October 1, 2026, interest on tax liabilities payable in naira will be pegged to the Central Bank of Nigeria’s Monetary Policy Rate, MPR, plus one percentage point. This represents a significant reduction from the previous five-percentage-point spread.
The new regime is contained in the Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026, issued by the Honourable Minister of Finance and Coordinating Minister of the Economy, Mr. Taiwo Oyedele, under Section 65 of the Nigeria Tax Administration Act, 2025.
The change applies uniformly to taxpayers dealing with federal, state and Federal Capital Territory (FCT) tax authorities, creating a common framework for determining interest on overdue liabilities.
However, the reduction does not mean the interest rate will fall indefinitely with the MPR. The order establishes the yield on 364-day Treasury Bills as the floor for naira-denominated tax interest. This reflects the government’s borrowing cost when delayed tax payments create a funding gap.
For tax liabilities payable in foreign currency, the applicable interest will be based on the Secured Overnight Financing Rate, SOFR, plus six percentage points. Where SOFR is discontinued, the order provides for its officially designated successor rate to be used.
The reform therefore moves tax interest away from a largely fixed premium and towards a market-linked mechanism. Its practical effect will depend on the prevailing MPR and Treasury Bill yield each month.
Mr. Oyedele said the approach was designed to prevent delayed tax payments from effectively becoming a cheaper source of financing for taxpayers.
“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,” he said.
“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.”
The distinction is important for businesses managing working capital. While the new formula lowers the spread over the MPR, taxpayers will still face an additional financial cost when obligations are not settled on time. The Treasury Bill floor also means the applicable rate will continue to reflect government borrowing conditions even where monetary conditions change.
The government is also introducing a more predictable publication system. Under the order, only one interest rate will apply in each calendar month, while the Nigeria Revenue Service (NRS) must publish the applicable rate on its website by the third business day of every month.
Mr. Oyedele said this was intended to reduce uncertainty in tax administration.
“Every taxpayer, whether dealing with the NRS 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.
The transition arrangements are also significant. The new rates will apply to interest arising from October 1, including interest relating to tax liabilities that became due before that date. However, interest that accrued before October 1 will remain subject to the rules that applied when it accrued, where provided under the existing regime.
The order consequently supersedes the 2017 notice on interest on unpaid taxes and other previous notices dealing with the issue.
Importantly, the reduction in interest does not remove the separate 10 percent penalty for late payment prescribed under Section 65 of the Nigeria Tax Administration Act. Taxpayers could therefore still face both interest and the statutory penalty where applicable.
There is, however, a provision for relief. Under Section 66 of the Act, tax authorities retain the power to waive penalty or interest where a taxpayer can establish good cause.
The federal government has consequently urged taxpayers with outstanding obligations to settle them promptly or engage the relevant tax authority. It also advised taxpayers to monitor the NRS website for the monthly applicable interest rate.
The new framework places tax compliance within a clearer market-based structure. For government, the objective is to protect revenue that is due while accounting for the financing cost created by delayed payments. For taxpayers, the key change is greater visibility over the financial consequence of settling tax liabilities late.
