Businesses Face 10% Penalty For Tax Default From October 1

Businesses with unpaid tax liabilities will face a 10 per cent statutory penalty and daily interest from October 1, 2026, under a new federal government regime linking the cost of tax arrears to prevailing borrowing rates.

The framework 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, pursuant to Section 65 of the Nigeria Tax Administration Act, 2025.

The Order replaces the 2017 notice and other earlier notices governing interest on unpaid taxes.

Under the new regime, interest on naira-denominated tax liabilities will be charged at the Central Bank of Nigeria’s Monetary Policy Rate plus one percentage point, subject to a floor based on the yield on 364-day Treasury Bills.

The new formula lowers the interest spread from the previous five percentage points above the MPR. However, it does not remove the separate 10 per cent penalty prescribed for late payment under the Nigeria Tax Administration Act.

Consequently, a taxpayer that defaults may be required to pay the original tax liability, a one-off penalty equal to 10 per cent of the unpaid tax, and interest calculated daily until the liability is settled.

The 10 per cent charge represents the statutory penalty for default, while the MPR-plus-one-percentage-point charge represents the financing cost of keeping the tax arrears outstanding. The interest is not a second one-off penalty but accrues as simple interest daily.

For example, a business with an unpaid tax liability of ₦10 million would incur a N1 million statutory penalty, in addition to the daily interest applicable for the period of default. The final amount would depend on the monthly rates and the date on which the liability is settled.

For taxes payable in foreign currency, the applicable interest will be SOFR plus six percentage points.

If SOFR is discontinued, its officially designated successor rate will apply.

The foreign-currency provision could expose businesses with dollar-denominated tax obligations to changes in international benchmark rates, as well as to exchange-rate risk affecting their naira cash flows.

The interest rate will be set monthly. The applicable rate for each calendar month will be determined on the last business day of the preceding month, while the Nigeria Revenue Service will publish the rate on its website by the third business day of each month.

The monthly rate-setting mechanism will give businesses advance notice of the applicable charge but will also expose outstanding tax liabilities to changes in monetary policy and market rates.

Businesses with arrears will therefore have to monitor the published rates and factor possible changes into their cash-flow and tax-planning decisions.

The revised formula may reduce the ongoing interest burden for some taxpayers because the spread above the MPR is falling from five percentage points to one percentage point. However, the 10 per cent penalty and the daily accrual of interest mean that delayed payment will remain costly.

Explaining the measure, Oyedele said delayed tax payments impose a financing cost on government because the state may have to borrow to cover revenue shortfalls.

“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,” he said.

The minister said linking the interest charge to market rates would prevent taxpayers from using unpaid taxes as a cheaper source of credit, while improving certainty and consistency in tax administration.

“Every taxpayer, whether dealing with the Nigeria Revenue Service or a State revenue service, will know the rate in advance, see it published every month, and be charged in the same way,” Oyedele said.

The Order applies to 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 on liabilities that became due before that date. However, interest that arose earlier will remain subject to the rules applicable when it arose, where those rules specifically provide for it.

Tax authorities retain the power under Section 66 to waive interest or penalties where taxpayers demonstrate good cause.

The federal government urged taxpayers with outstanding liabilities to settle them promptly or engage the relevant tax authority, and advised businesses to file returns and pay taxes within the prescribed deadlines.