morganable politics/Policy
The Nigeria Revenue Service has been directed to publish the applicable rates on its website by the third business day of every month, ensuring that taxpayers are fully informed in advance
KaNo—
The Federal Government has reduced the interest rate charged on late payment of taxes, introducing a new framework aimed at aligning penalties with prevailing market conditions and improving compliance across the country’s tax system.
The new regime, which takes effect from October 1, 2026, was announced in a statement issued on Thursday by the Federal Ministry of Finance in Abuja.
The directive is contained in the Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026, signed by the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele.
Under the revised order, interest on overdue tax liabilities denominated in naira will now be calculated at the Monetary Policy Rate set by the Central Bank of Nigeria plus one percentage point.
This marks a significant reduction from the previous regime, which imposed a five-percentage-point spread above the benchmark rate.
Despite the reduction, the government introduced a safeguard to ensure that interest charges do not fall below its own cost of borrowing.
According to the ministry, the applicable rate “will not fall below the yield on 364-day Treasury Bills,” reflecting the cost incurred by the government when it raises funds to cover revenue gaps caused by delayed tax payments.
Officials said the move is designed to strike a balance between fairness to taxpayers and the need to protect public finances.
By tying interest rates more closely to market realities, the government hopes to discourage businesses and individuals from using delayed tax payments as a cheaper alternative to formal borrowing.
For taxes payable in foreign currency, the order provides that interest will be charged at the Secured Overnight Financing Rate, an international benchmark for US dollar lending, plus six percentage points.
The ministry noted that in the event of the discontinuation of SOFR, its official successor rate would automatically apply.
The new framework also introduces greater transparency in the determination and application of interest rates.
A single rate will apply for each calendar month and will be determined based on market conditions at the end of the preceding month.
The Nigeria Revenue Service has been directed to publish the applicable rates on its website by the third business day of every month, ensuring that taxpayers are fully informed in advance.
Interest on overdue taxes will be calculated on a simple interest basis and will accrue daily from the due date until the liability is settled.
The ministry stated that the rules would apply uniformly across all tax authorities at the federal, state, and Federal Capital Territory levels, covering both self-assessed taxes and other obligations administered by revenue agencies.
Explaining the rationale behind the policy shift, Oyedele emphasised the broader economic implications of delayed tax payments.
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.”
He added that the new framework ensures that late payment of taxes does not become an unintended source of cheap financing for taxpayers.
“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,” he said.
The minister also highlighted the importance of predictability and consistency in tax administration, noting that the revised system would provide clarity for taxpayers regardless of the authority they deal with.
“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,” he said.
According to the ministry, the new rates will apply to all interest arising from October 1, including interest on tax liabilities that became due before that date.
However, it clarified that any interest that accrued before October 1 would remain subject to the rules that were in force at the time, ensuring that the policy is not applied retroactively in a manner that would disrupt existing obligations.
The order effectively replaces the 2017 notice on interest on unpaid taxes, as well as any other earlier directives on the subject.
Authorities say the update reflects broader reforms introduced under the Nigeria Tax Administration Act, 2025, which seeks to modernise tax processes and improve revenue collection efficiency.
Despite the reduction in interest rates, the ministry stressed that the new order does not alter the statutory penalty for late payment of taxes.
The existing penalty of 10 per cent, as stipulated under Section 65 of the Act, remains in force.
However, tax authorities retain discretionary powers under Section 66 of the Act to waive penalties or interest where taxpayers can demonstrate good cause.
This provision, officials say, is intended to accommodate genuine cases of financial difficulty or administrative challenges, while still maintaining the integrity of the tax system.
Analysts say the new policy could have mixed implications for taxpayers and government revenue.
While the lower interest rate may ease the burden on businesses struggling with cash flow constraints, the linkage to market rates and Treasury bill yields ensures that the cost of non-compliance remains significant.
By aligning tax penalties with borrowing costs, the government is also sending a signal that timely tax payment is critical to fiscal stability.
Delayed tax revenues can widen budget deficits and increase reliance on debt, particularly in an environment of rising public expenditure and economic uncertainty.
The ministry, in its statement, urged taxpayers to comply with filing and payment deadlines to avoid incurring additional charges.
It also advised those with outstanding liabilities to settle them promptly or engage with the relevant tax authorities to explore possible resolutions.
The reform comes amid ongoing efforts by the government to strengthen domestic revenue mobilisation and reduce dependence on borrowing.
