FG Overhauls Late Tax Interest Regime: Market Rates to Dictate Penalties from October 1
The Federal Government has enacted a significant shift in its tax administration framework, introducing the Nigeria Tax Administration Order 2026, which will take effect on October 1, 2026. This new order fundamentally alters the calculation of interest on late tax payments, moving away from a fixed spread to a model directly linked to prevailing market interest rates. The announcement, made by the Federal Ministry of Finance, signals a strategic move to align tax penalties with the economic realities of borrowing costs.
Under the revised regime, interest on overdue taxes denominated in naira will now be calculated at the Central Bank of Nigeria’s Monetary Policy Rate (MPR) plus one percentage point. Crucially, this rate will not fall below the yield on 364-day Treasury Bills, ensuring that the cost of delayed tax remittances reflects the government’s own borrowing expenses. For tax liabilities in foreign currency, the benchmark will be the Secured Overnight Financing Rate (SOFR), the standard for US dollar borrowing, plus six percentage points. The order also stipulates that any successor rate to SOFR, should it be discontinued, will be adopted.
The Nigeria Revenue Service (NRS) is mandated to publish the applicable monthly interest rates on its official website by the third business day of each month. Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, explained that the objective is to eliminate any financial incentive for taxpayers to withhold funds due to the government. “Tax that is due belongs to the public,” Oyedele stated, emphasizing that late payments necessitate government borrowing, with the associated costs borne by all citizens. He further noted that aligning late payment costs with market rates prevents tax deferral from becoming a cheaper alternative to formal borrowing.
This recalibration aims to provide enhanced certainty and transparency for taxpayers. The new framework establishes a uniform and publicly accessible method for calculating interest, ensuring that all taxpayers, regardless of whether they interact with the NRS or state revenue services, can anticipate and understand the applicable rates. The order supersedes the 2017 notice on interest for unpaid taxes and other prior directives on the subject. It is important to note that the 10 per cent penalty for late payment, as stipulated under Section 65 of the Nigeria Tax Administration Act, 2025, remains unchanged. Tax authorities also retain their discretion under Section 66 of the Act to waive penalties or interest upon demonstration of sufficient cause. Taxpayers are strongly advised to ensure prompt filing and payment of tax liabilities to avoid these increased costs and to monitor the NRS website for the monthly rate publications.
