The Federal Government introduced a new method for calculating interest on tax that is not paid on time.
The Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026 took effect on 1 October 2026.
The change did not introduce a new tax or a new late-payment obligation. It changed the interest rate that applies when tax remains unpaid.
What changed?
For tax payable in Naira, interest is now charged at:
CBN Monetary Policy Rate (MPR) + 1 percentage point
However, the applicable rate cannot be lower than the yield on the 364-day Treasury Bill.
For tax payable in a foreign currency, interest is charged at the Secured Overnight Financing Rate (SOFR) + 6 percentage points.
SOFR is a widely used benchmark for overnight US dollar borrowing rates.
The applicable rate may change from month to month, and the Nigeria Revenue Service is expected to publish the rate applicable for each month.
The 10% penalty still applies
The new Order did not remove the existing 10% penalty for late payment of tax.
A taxpayer who does not pay tax on time may therefore have to pay:
- the outstanding tax;
- the 10% late-payment penalty; and
- interest on the unpaid amount until payment is made.
The relevant tax authority may also issue a demand notice and take recovery steps where tax remains unpaid.
What happened to tax that was already outstanding before 1 October?
The Order specifically addressed existing tax debts.
Where a tax liability had already become due before 1 October 2026, interest that had arisen before that date remained subject to the rules that applied at the time.
However, where that tax remained unpaid as at 1 October 2026, interest arising from that date became subject to the new rates.
In simple terms, an older unpaid tax liability may therefore have had two interest periods:
Before 1 October 2026: the previous interest rules applied.
From 1 October 2026: the new interest rules applied to interest arising while the tax remained unpaid.
In practice, the treatment of some older liabilities may also depend on how the assessment was recorded and administered. For example, a manually issued assessment or audit adjustment may not necessarily behave in the same way as a liability already captured in the tax authority’s electronic system.
The Order does not set out detailed operational guidance for every such legacy situation, so businesses with older assessments should confirm the actual treatment with the relevant tax authority.
Can interest or penalties be waived?
Yes, in appropriate circumstances.
Section 66 of the Nigeria Tax Administration Act allows the relevant tax authority, where good cause is shown, to remit all or part of a penalty or interest due.
This is not automatic. A taxpayer seeking relief would need to engage the relevant tax authority and explain the circumstances supporting the request.
This may be relevant where there are, for example, old liabilities, disputed assessments, reconciliation issues or other genuine circumstances affecting payment.
Businesses should therefore consider engaging the tax authority early rather than allowing interest and penalties to continue to accumulate.
What businesses should do
Businesses with outstanding tax liabilities should first confirm what is actually unpaid and how the liability arose.
They should also:
- identify any interest relating to periods before and from 1 October 2026;
- check the applicable monthly rate;
- review any interest and penalty already assessed;
- confirm how older or manually raised assessments are being treated;
- include outstanding tax in cash-flow planning; and
- engage the relevant tax authority early where there is a genuine basis for resolving the liability or seeking a waiver.
The Federal Government also advised taxpayers with outstanding liabilities to settle them promptly or engage the relevant tax authority.
How Vi-M Can Help
Vi-M Professional Solutions can assist businesses with:
- reviewing outstanding tax liabilities;
- checking interest and penalty computations;
- reviewing pre- and post-1 October 2026 interest treatment;
- reconciling historical or disputed tax balances;
- assessing possible grounds for waiver of interest or penalties; and
- engaging with the relevant tax authority where necessary.
For enquiries: clients@vi-m.com
Website: vi-m.com
Source: Federal Ministry of Finance Press Release dated 24 September 2026 and the Nigeria Tax Administration Act, 2025.
This article is for general information only and does not constitute legal or tax advice.