Late Tax Payments: Nigeria Slashes Interest Margin From 5% to 1%
New Tax Rules Cut Interest on Late Payments Across Nigeria
The Federal Government has reduced the interest margin charged on late tax payments, cutting the additional spread above the Central Bank of Nigeria’s Monetary Policy Rate (MPR) from five percentage points to one percentage point.
The new regime will take effect from October 1, 2026, and will apply uniformly to taxpayers dealing with federal, state and Federal Capital Territory tax authorities.
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The change is contained in the Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026, issued by the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, under Section 65 of the Nigeria Tax Administration Act, 2025.
New Market-Linked Interest Framework
Under the new framework, interest on naira-denominated tax liabilities will be charged at the prevailing MPR plus one percentage point, compared with the previous MPR plus five percentage points.
However, the applicable rate will not fall below the yield on 364-day Treasury Bills, reflecting the Federal Government’s borrowing cost.
For tax liabilities payable in foreign currency, the interest rate will be based on the Secured Overnight Financing Rate (SOFR) plus six percentage points.
The applicable rate will be determined monthly, with the Nigeria Revenue Service required to publish the rate by the third business day of each month.
Interest will also be calculated as simple interest on a daily basis, running from the date the tax becomes due until payment.
10% Late-Payment Penalty Remains
The reduction in the interest margin does not remove the separate statutory penalty for late payment.
The government clarified that the 10 per cent penalty prescribed under Section 65 of the Nigeria Tax Administration Act remains in force.
Tax authorities also retain the power to waive interest or penalties where taxpayers establish good cause under Section 66 of the Act.
Interest arising from October 1 will fall under the new framework, including interest relating to tax liabilities that became due before that date. However, interest that accrued before October 1 will remain subject to the rules applicable when it arose, where those provisions apply.
Implications for Businesses and Property Investors
The adjustment provides greater certainty for businesses that manage tax liabilities alongside other financing obligations.
For property developers, construction companies and real estate investors, predictable tax costs can form part of project cash-flow planning, particularly for developments with long construction cycles and substantial statutory obligations.
The change does not directly reduce other development costs such as land acquisition, construction materials, financing or infrastructure provision. However, a more transparent mechanism for calculating tax arrears could make it easier for businesses to quantify the financial consequences of delayed payments.
This is particularly relevant to property businesses operating across multiple jurisdictions, as the framework applies to federal, state and FCT tax authorities.
Tax Policy Shifts Towards Market-Based Pricing
The government said the new framework is intended to align the cost of delayed tax payments more closely with prevailing market conditions while preventing unpaid taxes from becoming a cheaper source of financing than commercial borrowing.
Oyedele said the framework was designed to ensure that taxpayers understand the cost of delaying their obligations and that the government can account for the financing implications of delayed revenue collection.
The introduction of a monthly published rate also replaces a more rigid interest structure with one that can adjust as monetary and market conditions change.
Outlook for Businesses and the Real Estate Sector
The new regime comes as Nigeria continues to overhaul its tax administration framework under the Nigeria Tax Act 2025 and related legislation.
For the real estate sector, the immediate significance lies less in the size of the reduction itself than in the move towards a clearer and market-linked framework for tax liabilities.
Developers and property businesses will still need to account for the separate 10 per cent late-payment penalty and ensure that tax obligations are incorporated into project and corporate cash-flow planning.
From October 1, the monthly interest rate published by the Nigeria Revenue Service will therefore become an additional financial benchmark for businesses managing outstanding tax liabilities
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