FG Slashes Interest on Late Tax Payments, Unveils New Rates Effective October 1

The Federal Government has announced a significant reduction in the interest charged on overdue tax payments, introducing a new framework that links penalties more closely to prevailing market rates and borrowing costs.

The revised regime, approved by the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, will take effect from October 1, 2026, and apply across federal, state and Federal Capital Territory tax administrations.

Under the new Order, taxpayers who fail to pay taxes on time in naira will now be charged interest at the Central Bank of Nigeria’s Monetary Policy Rate (MPR) plus one percentage point. This replaces the previous arrangement, which imposed a margin of five percentage points above the benchmark rate.

The government, however, introduced a safeguard to ensure that the interest rate does not fall below the yield on 364-day Treasury Bills, which reflects the cost at which the government borrows money.

For tax liabilities denominated in foreign currencies, interest will be calculated using the Secured Overnight Financing Rate (SOFR) plus six percentage points. Should SOFR cease to exist in the future, its officially recognised replacement benchmark will automatically take effect.

Officials say the new framework is designed to make the tax system more transparent, predictable and consistent, while ensuring that taxpayers face a fair and clearly defined cost for delayed payments.

To improve certainty, a single interest rate will apply for each calendar month. The rate will be determined on the final business day of the preceding month and published by the Nigeria Revenue Service no later than the third working day of every month.

Interest on unpaid taxes will accrue daily using a simple interest method from the due date until the outstanding liability is fully settled.

Explaining the rationale behind the reform, Oyedele said taxes collected by government belong to the public and that delays in payment often force authorities to seek alternative funding.

“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.

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According to the minister, the new approach ensures that taxpayers cannot effectively use unpaid taxes as a cheaper source of financing than what is available in the financial market.

“This Order ties the cost of late payment to real market rates, so that delay in paying tax does not become a cheaper form of credit than the market itself,” Oyedele added.

He also said the reforms would eliminate uncertainty by ensuring that all taxpayers are subject to the same rules regardless of whether they are dealing with the Nigeria Revenue Service or a state tax authority.

“Every taxpayer will know the rate in advance, see it published every month, and be charged in the same way,” he said.

The new rates will apply to interest accruing from October 1, 2026, including outstanding tax liabilities that arose before the commencement date. However, interest already accumulated before the new Order takes effect will continue to be governed by the rules that were in place at the time it accrued.

The Order formally replaces the 2017 guidelines on interest charges for unpaid taxes and supersedes earlier notices issued on the subject.

Despite the reduction in interest rates, the government clarified that the statutory 10 per cent penalty for late tax payment remains unchanged under Section 65 of the Nigeria Tax Administration Act, 2025.

Tax authorities also retain discretionary powers under Section 66 of the Act to waive penalties or interest where taxpayers can demonstrate valid reasons for non-compliance.

The government has advised individuals and businesses to file their tax returns promptly, monitor the monthly interest rates published by the Nigeria Revenue Service and settle outstanding obligations without delay.

The reform is part of broader changes introduced under the Nigeria Tax Administration Act, 2025, and is expected to simplify tax administration while promoting greater compliance through clearer and more predictable rules.