Nigeria Cuts Interest on Late Tax Bills to Central Bank Rate Plus 1 Point

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Nigeria, Africa’s most populous country, is cutting the late tax interest it charges on overdue bills from 1 October 2026. It will equal the central bank’s policy rate plus 1 point, down from 5, with a floor tied to government borrowing costs.

From 1 October 2026, late tax payments in Nigeria will carry interest at the central bank’s policy rate plus 1 percentage point. The change cuts the old spread of 5 percentage points and leaves the 10 percent late-payment penalty in place.

What the new late tax interest order changes

Taiwo Oyedele, Nigeria’s Minister of Finance and Coordinating Minister of the Economy since April 2026, issued the order. It rests on Section 65 of the Nigeria Tax Administration Act, 2025, which took effect on 1 January 2026.

It binds the Nigeria Revenue Service, the federal tax agency that replaced the Federal Inland Revenue Service in January. State tax authorities and the tax authority of Abuja’s Federal Capital Territory must apply the same standard.

For naira debts, the rate cannot fall below the yield on 364-day Treasury bills, the government’s one-year borrowing cost. Foreign-currency arrears are charged at the Secured Overnight Financing Rate (SOFR), a US dollar benchmark, plus 6 percentage points.

The Nigeria Revenue Service must publish the applicable rate on its website by the third business day of each month. Interest accrues daily as simple interest, from the due date until payment, with no compounding.

Why the timing matters for taxpayers

The Central Bank of Nigeria cut its Monetary Policy Rate to 23 percent from 26.5 percent on 22 September 2026. The new regime starts just over a week later, so the cut lowers the naira benchmark from day one.

Under the old formula, a defaulter paid the benchmark rate plus 5 percentage points. Under the new rule, the spread falls to 1 percentage point, a saving even before the rate cut.

The Treasury bill floor means the effective rate cannot fall below what the state pays on one-year debt. With one-year bill yields well below the 24 percent the formula now gives, the floor does not bite for now.

The revenue push behind the rule

Nigeria has been tightening tax administration to raise non-oil revenue. President Bola Tinubu signed four tax reform laws in June 2025, and the new regime took effect on 1 January 2026.

By linking interest on arrears to market rates, the government treats unpaid tax more like credit. A business that delays paying tax is in effect borrowing from the state, and the formula prices that more transparently.

The 10 percent late-payment penalty remains on top of the interest charge. A defaulter therefore still faces a fixed penalty plus a market-linked interest cost, which makes prompt payment the cheaper option.

Who gains and who loses

Taxpayers with naira arrears gain from the lower spread, especially after the central bank’s cut to 23 percent. The drop from a 5-point to a 1-point spread is a direct saving, unless the Treasury bill floor binds.

Holders of foreign-currency tax arrears face a different calculation. SOFR plus 6 points may cost more or less than before, depending on dollar rates, but the applicable rate is now explicit.

State and Federal Capital Territory tax authorities gain a uniform standard, which should reduce disputes over interest. The Nigeria Revenue Service’s monthly publication duty also makes the system easier to audit.

The regional and global read-through

Across West Africa, governments are trying to broaden tax bases and rely less on commodity exports. Linking late-payment interest to market rates makes Nigeria’s enforcement more predictable for investors and lenders.

The approach has precedents elsewhere. Britain’s tax authority, for example, charges late-payment interest at the Bank of England base rate plus 4 percentage points.

As Africa’s most populous country tightens its fiscal machinery, the shift is part of a wider contest for revenue and credibility. The pattern is visible across the continent, as covered in Africa: The New Scramble.

What to watch next

The first test comes in early October 2026, when the Nigeria Revenue Service publishes its first monthly rate. That figure will set the baseline for late payments across federal, state and Federal Capital Territory authorities.

Watch whether the central bank keeps cutting, which would further lower the cost of naira arrears. Also watch one-year bill yields, since the floor would bite only if they rose above the policy rate plus 1 point.

Interest that accrued before 1 October stays under the old rules, while interest from that date follows the new formula. The order also replaces a 2017 notice on interest on unpaid taxes.

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