Nigeria’s New Interest Rate for Late Tax Payments Takes Effect from 1 October 2026

A new framework for calculating interest on late tax payments in Nigeria takes effect from 1 October 2026. The new approach changes the basis for calculating interest on unpaid tax and is expected to affect businesses and individuals with outstanding tax liabilities.

The change replaces the previous fixed spread over the Central Bank of Nigeria’s Monetary Policy Rate with a formula linked to the prevailing policy rate.

New Interest Rate Formula for Late Tax Payments The Nigeria Tax Administration (Interest on Late Payment of Tax) Order 2026, made pursuant to the Nigeria Tax Administration Act 2025, introduces a new approach to calculating interest on late payment of tax.

For tax liabilities denominated in naira, the applicable interest rate is calculated using:

CBN Monetary Policy Rate + 1 percentage point

This represents a reduction from the previous five percentage point spread over the applicable monetary policy rate.

The new framework also provides for a minimum interest rate based on the yield on 364-day Nigerian Treasury Bills.

For tax liabilities denominated in foreign currency, the applicable interest rate is based on the Secured Overnight Financing Rate (SOFR) + 6 percentage points.

What the New Rate Means for Taxpayers The Central Bank of Nigeria reduced the Monetary Policy Rate from 26.5 percent to 23 percent on 22 September 2026.

Based on the new formula, the applicable interest rate for naira-denominated tax liabilities would therefore be approximately 24 percent, subject to the applicable Treasury bill floor.

Under the previous formula, the rate would have been approximately 28 percent.

The change may therefore reduce the interest burden on taxpayers with outstanding tax liabilities, depending on the applicable Treasury bill yield and the period for which the liability remains unpaid.

Monthly Determination of the Applicable Rate The Nigeria Revenue Service is expected to publish the applicable interest rate by the third business day of each month.

This provides taxpayers with a clear reference point for determining the interest payable on outstanding tax liabilities for the relevant period.

The applicable rate is intended to provide a more responsive framework by reflecting movements in the underlying monetary and financial market indicators.

Application to Tax Authorities The new interest framework applies to taxes administered under Nigeria’s tax administration framework, including relevant tax liabilities administered by the Nigeria Revenue Service and applicable State and Federal Capital Territory tax authorities.

The rules also cover interest arising from unpaid self-assessed tax liabilities.

Taxpayers should therefore consider their obligations across all relevant tax authorities when reviewing outstanding liabilities.

The 10 Percent Late Payment Penalty Remains The introduction of the new interest calculation does not eliminate the separate penalty for late payment of tax.

The 10 percent late payment penalty remains applicable where the relevant statutory conditions are met.

This means that a taxpayer who fails to pay tax when due may be exposed to both:

The applicable late payment penalty, and

Interest on the outstanding tax liability.

The penalty and interest serve different purposes and should be treated separately when calculating a taxpayer’s total exposure.

Treatment of Existing Tax Liabilities The introduction of the new framework is particularly relevant to taxpayers with outstanding tax debts.

Interest accrued before 1 October 2026 remains subject to the applicable rules for the earlier period, while the new interest rate applies to interest arising from 1 October 2026.

Consequently, an existing tax liability may involve different interest calculations depending on the period during which the liability remained unpaid.

Taxpayers with outstanding assessments should therefore review the principal tax, penalties and interest separately.

What Taxpayers With Outstanding Tax Debts Should Do Businesses and individuals with outstanding tax liabilities should take practical steps to determine their current exposure.

These include:

Confirm the outstanding principal tax liability.

Review any penalties already imposed.

Determine the period for which interest has accrued.

Apply the applicable interest rate for each relevant period.

Reconcile payments already made against the outstanding liability.

Keep records of assessments, payment receipts, correspondence and agreements with the relevant tax authority.

Businesses should also review their internal tax compliance processes to reduce the risk of future penalties and interest.

Tax Identification Numbers Nigeria’s tax administration framework also provides for a unified Tax Identification Number system.

Under the new system, taxable persons are assigned a 13-digit Tax ID. For individuals, the Tax ID is linked to the National Identification Number, while companies are linked to their Corporate Affairs Commission registration details.

Taxpayers can retrieve their Tax ID through the relevant official platforms without having to create a separate tax identity where one already exists.

The system is intended to simplify taxpayer identification and improve the administration and tracking of tax obligations.

Tax Disputes and the Tax Ombud The Office of the Tax Ombud provides a mechanism through which taxpayers can raise complaints concerning aspects of tax administration.

Taxpayers who have concerns regarding the conduct of a tax authority, the administration of taxes, levies or regulatory charges may use the available complaint and dispute resolution mechanisms.

The Tax Ombud provides an additional avenue for addressing taxpayer complaints without removing the other statutory avenues available for challenging tax assessments or decisions.

What Small Businesses Should Know The Nigeria Tax Act 2025 provides a zero percent Companies Income Tax rate for qualifying small companies.

A company generally qualifies as a small company where it falls within the applicable statutory thresholds, including:

Annual turnover: not more than ₦100 million

Fixed assets: not more than ₦250 million

However, a zero percent Companies Income Tax rate does not mean that a qualifying business is exempt from all tax obligations.

Small businesses may still have filing, record-keeping and other compliance obligations. The treatment also does not automatically remove obligations relating to taxes such as PAYE and VAT where those taxes apply.

Late payment of applicable taxes may also result in penalties and interest.

What the New Framework Means for Businesses The new interest regime reinforces the importance of timely tax compliance.

Businesses with outstanding tax liabilities should consider their total exposure rather than focusing solely on the principal tax amount. The final amount payable may include the principal tax, applicable penalties and interest.

Companies should also regularly reconcile their tax records with the records of the relevant tax authorities and promptly address outstanding assessments or payment obligations.

For businesses involved in tax disputes, professional advice may be necessary to determine whether the assessment is valid, whether interest and penalties have been correctly calculated and what statutory dispute resolution options are available.

Conclusion The new framework for interest on late tax payments represents a significant change to Nigeria’s tax administration regime from 1 October 2026.

By linking interest on naira-denominated tax liabilities to the CBN Monetary Policy Rate, with an additional one percentage point and a Treasury bill floor, the framework creates a more dynamic basis for determining the financial consequences of late tax payment.

Taxpayers with outstanding liabilities should review their tax position, reconcile their principal obligations with applicable penalties and interest, and ensure that future tax payments are made within the prescribed deadlines.

For businesses, effective tax compliance is no longer simply about filing returns. It also requires maintaining accurate records, monitoring payment deadlines and promptly resolving outstanding tax liabilities.