FG Cuts Late Tax Payment Interest: What Nigerians Need to Know
If you owe tax in Nigeria and pay after the deadline, the amount you owe can increase through both a penalty and interest. That system is changing from October 1, 2026.
The Federal Government has issued the Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026, changing how interest on unpaid tax is calculated. For tax payable in naira, the new formula is linked to the Central Bank of Nigeria’s Monetary Policy Rate plus 1 percentage point, subject to the 364 day Nigerian Treasury Bill yield floor.
The change takes effect on October 1, 2026 and applies to tax obligations administered across Nigeria’s federal, state and Federal Capital Territory tax system.
There is also one detail taxpayers need to understand before assuming late payment has simply become cheaper.
The 10% late payment penalty remains.
Here is what is changing and what it means for you.
Quick Summary
- Late tax interest is changing from October 1, 2026 — naira tax interest will be based on the CBN Monetary Policy Rate plus 1 percentage point, subject to the 364 day Treasury Bill yield floor
- The previous spread was MPR + 5 percentage points — the new Order reduces the spread used in the interest calculation
- Foreign currency tax has a separate formula — interest will be based on SOFR plus 6 percentage points
- The rate will be published monthly — the Nigeria Revenue Service will publish the applicable rate by the third business day of each month
- Interest is calculated daily — the Order provides for simple interest from the date the tax becomes due until payment
- The 10% late payment penalty remains — changing the interest formula does not remove the statutory late payment penalty under the Nigeria Tax Administration Act 2025
What Has Changed?
Under Section 65 of the Nigeria Tax Administration Act 2025, unpaid tax can attract a late payment penalty and interest.
The new Order changes the spread used to calculate interest on tax payable in naira.
The new formula is:
CBN Monetary Policy Rate + 1 percentage point
The previous spread was 5 percentage points above the MPR.
The new rate is also subject to a floor based on the yield on 364 day Nigerian Treasury Bills. This means the applicable rate is linked to prevailing market benchmarks rather than remaining fixed at one annual percentage.
What Is the New Late Tax Payment Interest Rate?
The Federal Government has announced the new formula, but there is no single permanent annual rate that will apply throughout 2026 and beyond.
Instead, the new system uses a monthly rate.
The applicable rate for each calendar month will be determined using the relevant benchmark on the last business day of the preceding month. The Nigeria Revenue Service will publish the applicable rate by the third business day of each month.
This means the rate applicable in October may differ from the rate applicable in November or December.
Taxpayers should therefore check the published NRS rate when calculating an outstanding tax liability instead of relying on an old rate.
What Could the October 2026 Rate Be?
The current benchmark gives us an indication, but it should not be presented as the confirmed October rate.
The Central Bank of Nigeria recently reduced the Monetary Policy Rate from 26.5% to 23%.
If the 23% MPR remains the relevant benchmark on the last business day of September, the MPR plus 1 percentage point formula would produce:
23% + 1% = 24%
The latest 364 day Treasury Bill auction on September 23 produced a stop rate of 15.89%, which is below 24%.
However, 24% should currently be treated as an implied rate, not the confirmed October 2026 rate.
The official October rate will be determined under the new monthly mechanism and published by the Nigeria Revenue Service.
The Old System vs the New System
| Previous system | New system from October 1, 2026 |
|---|---|
| Naira tax interest: MPR + 5 percentage points | Naira tax interest: MPR + 1 percentage point, subject to the 364 day Treasury Bill yield floor |
| Previous rate framework | One applicable rate for each calendar month |
| Previous foreign currency framework | SOFR + 6 percentage points |
| Late payment penalty: 10% | Late payment penalty: 10% remains |
The new Order supersedes the 2017 notice on interest on unpaid taxes and other earlier notices dealing with the subject.
What Happens If You Pay Your Tax Late?
There are two separate financial consequences to understand.
The 10% Late Payment Penalty
The Nigeria Tax Administration Act provides for a 10% penalty for late payment.
For example, if your unpaid tax is:
₦1,000,000
A 10% penalty would be:
₦100,000
That penalty is separate from the interest.
The Late Payment Interest
The new interest is calculated from the date the tax becomes due until the date it is paid.
The new Order provides for simple interest calculated daily.
For illustration only, if the applicable annual interest rate were 24% and the outstanding tax were ₦1,000,000:
₦1,000,000 × 24% ÷ 365 = approximately ₦657.53 per day
For 30 days:
₦657.53 × 30 = approximately ₦19,726
This is an illustration using a hypothetical 24% rate. It is not the official October 2026 rate.
The 10% late payment penalty is also separate from this interest calculation.
Could a ₦1 Million Tax Debt Become More Than ₦1.1 Million?
Yes, potentially.
Suppose a taxpayer has:
Tax liability: ₦1,000,000
10% late payment penalty: ₦100,000
Then applicable late payment interest is added based on the rate and number of days the liability remains outstanding.
Using the hypothetical 24% rate above, 30 days of simple interest would be approximately ₦19,726.
That would produce an illustrative total of:
₦1,119,726
Again, this is an example for explaining the calculation. The actual liability depends on the applicable monthly rate, the amount of tax due and the number of days outstanding.
What Happens If You Already Owe Tax Before October 1?
The transition rules are important.
The new rates 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 remains subject to the rules applicable at the time.
In practical terms, October 1 does not erase interest that has already accrued under the previous framework.
If you already have an outstanding tax liability, the period before October 1 and the period from October 1 may therefore have to be treated according to the rules applicable to each period.
If you are unsure how much you owe, request an updated statement from the relevant tax authority rather than estimating the liability yourself.
Will the Interest Rate Change Every Month?
The new framework uses a monthly applicable rate.
The relevant benchmark is determined on the last business day of the preceding month, and the Nigeria Revenue Service is expected to publish the applicable rate by the third business day of each month.
That means taxpayers should not assume that one published rate will remain in force for the entire year.
For example, the rate applicable in October may differ from the rate applicable in November if the underlying benchmark changes.
For taxpayers, checking the NRS monthly publication will be important when calculating an outstanding tax liability.
What About Taxes Payable in Foreign Currency?
The new Order also covers tax liabilities payable in foreign currency.
The interest rate will be:
SOFR + 6 percentage points
SOFR is the Secured Overnight Financing Rate, a benchmark used for US dollar financial markets.
If SOFR is discontinued, the Order provides for the use of its officially designated successor rate.
Does This Apply to State Taxes?
Yes.
The new framework applies to tax obligations administered by:
- The Nigeria Revenue Service
- State Internal Revenue Services
- The Federal Capital Territory Internal Revenue Service
It also covers self assessment as well as assessments administered by the relevant tax authorities.
This means the change is relevant to individuals and businesses with tax liabilities handled at different levels of Nigeria’s tax administration system.
Does the New Order Remove the 10% Penalty?
No.
This is one of the easiest parts of the announcement to misunderstand.
The new Order changes the interest framework. It does not remove the 10% late payment penalty under Section 65 of the Nigeria Tax Administration Act 2025.
A taxpayer who pays late can therefore have both:
10% late payment penalty
Applicable late payment interest
The exact liability depends on the tax due, the applicable rate and the period of default.
Can Tax Interest or the Penalty Be Waived?
Section 66 of the Nigeria Tax Administration Act gives the relevant tax authority power to waive all or part of a penalty or interest where good cause is shown.
That does not mean a waiver is automatic.
If you believe there are circumstances that justify a waiver, you should make the appropriate request to the relevant tax authority and provide supporting information.
Why Has the Government Changed the Formula?
The Federal Government says the new framework is intended to link the cost of paying tax late more closely to prevailing market rates.
According to Finance Minister and Coordinating Minister of the Economy Taiwo Oyedele, when tax is paid late, government may need to borrow to cover the resulting funding gap. The new framework therefore links the cost of late payment to market rates.
The government has also said the monthly publication mechanism is intended to give taxpayers greater certainty about the rate that applies to late payment.
What Should You Do If You Have an Outstanding Tax Liability?
If you already owe tax, do not wait until October 1 simply because the new spread is lower.
First, establish exactly how much tax you owe.
Then request an updated statement from the relevant tax authority showing the outstanding tax, penalty and interest.
If you believe there are circumstances that justify a waiver of some or all of the penalty or interest, make the appropriate request and provide supporting evidence.
If you believe the underlying assessment is incorrect, get professional tax advice before making payment or agreeing to the assessment.
For future liabilities, the simplest way to avoid late payment interest and penalties is to file and pay within the applicable deadline.
If you are still unclear about filing deadlines or have already missed one, read our article on why most Nigerians file tax late and how to fix it. It covers the self assessment process, filing deadlines and what to do if you are already late.
You can also explore the Taxidy blog for our guides on Nigeria’s tax calendar, PAYE, the Nigeria Tax Act 2025 and small business tax compliance.
What This Means for Nigerian Taxpayers
Nigeria is changing the way interest on late tax payments is calculated from October 1, 2026.
For naira tax liabilities, the new formula is:
CBN MPR + 1 percentage point
The rate is also subject to the 364 day Treasury Bill yield floor.
For foreign currency tax liabilities, the formula is:
SOFR + 6 percentage points
The applicable rate will be determined monthly and published by the Nigeria Revenue Service.
Interest will be calculated daily on a simple interest basis.
The 10% late payment penalty remains.
The current CBN MPR is 23%, so the formula currently points to 24%. However, the official October rate should be treated as unconfirmed until the applicable benchmark is determined at the end of September and the NRS publishes the monthly rate.
If you have outstanding tax, now is a good time to establish exactly what you owe and engage the relevant tax authority where necessary.
This article is for informational purposes only. It does not constitute tax, legal or financial advice. For guidance specific to your circumstances, consult a registered tax professional or the relevant tax authority.
Taxidy is built by Nigerians who understand exactly how confusing this system is.
Sources: Nigeria Tax Administration Act 2025, Sections 65 and 66. Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026. Federal Ministry of Finance, September 2026. Nigeria Revenue Service. Central Bank of Nigeria, September 2026 Monetary Policy Committee decision. Channels Television, September 24, 2026. Nairametrics, September 24, 2026. BusinessDay, September 24, 2026.
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