Nigerian businesses with outstanding tax liabilities will have to treat unpaid taxes increasingly as a financing decision, as a new federal framework links the cost of tax arrears to prevailing monetary and money-market rates from October 1, 2026.
The regime, introduced through the Nigeria Tax Administration (Interest on Late Payment of Tax) Order, 2026, replaces the previous interest framework and changes how the government calculates the cost of delayed tax payments.
Businesses that leave their tax bills unpaid will now have to factor the cost of that decision into their working-capital plans.
From October 1, interest on naira-denominated tax arrears will be calculated at the CBN’s MPR plus one percentage point, subject to a floor based on the yield on 364-day Treasury Bills.
Although the new formula cuts the interest spread from five percentage points above the MPR, it does not eliminate the separate 10 per cent penalty for late payment.
In practical terms, companies in default will face both an upfront penalty and a running interest bill.
For every ₦10 million in unpaid tax, the statutory penalty alone would amount to ₦1 million. Interest would then continue to accrue daily until the liability is cleared.
The new structure effectively makes unpaid tax a form of short-term financing with a floating cost.
Companies under pressure to preserve cash will therefore have to weigh the benefit of retaining funds against an interest charge that can move from month to month.
Unlike the previous framework, which relied on a wider fixed spread over the MPR, the new system introduces a monthly reset mechanism.
The applicable interest rate for each calendar month will be determined on the last business day of the preceding month, with the Nigeria Revenue Service required to publish the rate by the third business day of the month.
Taiwo Oyedele, finance minister and coordinating minister of the economy said the rationale was straightforward, ass delayed tax payments create a funding gap for the government that may have to be bridged through borrowing.
“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,” Oyedele said.
The new framework also introduces a separate benchmark for taxes payable in foreign currency.
Such liabilities will attract interest at the Secured Overnight Financing Rate, or SOFR, plus six percentage points. If SOFR is discontinued, its officially designated successor will be used.
Businesses with tax obligations denominated in foreign currency will face an additional layer of financial risk under Nigeria’s new late-payment regime, as the cost of outstanding liabilities will be linked to international interest-rate benchmarks.
Companies generating most of their revenue in naira could also face foreign-exchange pressure when settling dollar-denominated tax liabilities, particularly where arrears remain outstanding for an extended period.
The financial cost of delaying payment will therefore depend on more than the amount of tax owed. Businesses will have to consider the applicable benchmark rate, the duration of the arrears and movements in the currency in which the liability is denominated.
The reduction in the naira interest spread from five percentage points above the MPR to one percentage point could reduce the ongoing interest burden for some taxpayers.
However, the new framework retains the separate 10 per cent statutory penalty for late payment.
Businesses in default will therefore face two distinct costs: a one-off penalty for failing to pay on time and daily interest for the period during which the tax remains outstanding.
For corporate finance teams, the distinction is significant because the longer a liability remains unresolved, the greater the cumulative financing cost.
Transition rules create new compliance demands
The Order covers self-assessment arrangements, the Nigeria Revenue Service and State and FCT Internal Revenue Services.
The new rates will apply to interest arising from October 1, including interest relating to tax liabilities that became due before that date. Interest that accrued before October 1 will, where applicable, remain governed by the rules in force when it arose.
Businesses with existing tax disputes or arrears will therefore need to separate the underlying tax liability from penalties and interest arising under different regimes.
The tax authorities may also waive interest or penalties under Section 66 where a taxpayer demonstrates good cause.
Overall, the new framework brings the cost of tax arrears closer to prevailing financial-market conditions, making tax liabilities an increasingly important consideration for corporate treasury and cash-flow planning.
