FG reduces interest on late tax payments from October 1, what Nigerians should know

• FG reduced the interest charged on late tax payments, effective October 1, 2026.

• The new rate is CBN's MPR plus 1%, down from MPR plus 5%, but cannot go below the 364-day Treasury Bill yield.

• The 10% penalty for late tax payment remains unchanged despite the new order.

• Nigeria Revenue Service will publish the applicable monthly interest rate, while interest will be calculated daily using simple interest.

The Federal Government has announced a reduction in the interest Nigerians will pay for settling their taxes late, but don't celebrate just yet because late payment will still attract extra charges.

The new rule will take effect from October 1, 2026, following the signing of the Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026 by the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele.

According to a statement released by the Federal Ministry of Finance on Thursday, September 24, the interest charged on overdue taxes paid in naira has been reduced.

Instead of charging the Central Bank of Nigeria (CBN) Monetary Policy Rate (MPR) plus five percentage points, taxpayers will now pay MPR plus one percentage point.

However, there's a catch.

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The government said the interest rate can never go below the yield on 364-day Treasury Bills, saying this reflects the amount it costs the government to borrow money when expected tax revenue doesn't come in on time.

The ministry explained:

"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 point 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 that are payable in foreign currencies, interest will now be calculated using the Secured Overnight Financing Rate (SOFR) plus six percentage points. If SOFR is replaced in the future, its official successor benchmark will automatically apply.

To make things more transparent, the Nigeria Revenue Service (NRS) has been directed to publish the applicable interest rate on its website every month, no later than the third business day.

The ministry also said interest will be calculated daily using simple interest, starting from the day the tax becomes due until it is fully paid.

Explaining why the government introduced the new order, Oyedele said delayed tax payments create funding problems for the government.

He 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."

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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 clarified that the new interest rates will apply to all interest that starts accumulating from October 1, 2026, even if the original tax became due before that date.

However, any interest that had already built up before October 1 will continue to follow the old rules where applicable.

The new order replaces the 2017 notice on interest for unpaid taxes and every earlier directive on the subject.

One thing that has not changed is the 10% penalty for paying tax late under Section 65 of the Nigeria Tax Administration Act, 2025.

The government also reminded taxpayers that tax authorities still have the legal power to waive penalties or interest in cases where there is a genuine reason for the delay.

Businesses and individuals with unpaid tax liabilities have been advised to settle them quickly or engage the relevant tax authority before additional charges continue to accumulate.