The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, has signed an order to reduce the interest rates applied to late tax payments. The directive is issued under the provisions of Section 65 of the Nigeria Tax Administration Act 2025.
The order aims to mitigate the financial burden on individuals and corporate entities that fail to meet their tax obligations within stipulated timelines. By adjusting these rates, the Federal Government seeks to foster a more sustainable tax environment and encourage voluntary compliance across various sectors of the economy.
This new tax order signed by the Minister addresses the interest charges previously incurred under the existing tax administration framework. The interest penalties on late payments have frequently been a point of contention for businesses facing liquidity challenges and cash flow constraints.
Impact of tax administration reforms
The Nigeria Tax Administration Act 2025 serves as the legal foundation for this directive. Section 65 of the Act specifically empowers the Minister of Finance to determine the interest rates that apply when tax is not paid on time. This legislative flexibility allows the government to adjust fiscal penalties in response to the prevailing economic climate and the specific needs of the Nigerian business community.
For many small and medium-sized enterprises (SMEs), high interest rates on late tax liabilities have historically acted as a major barrier to formalised business operations. In an economy currently navigating high inflation and tight credit conditions, excessive interest charges can quickly escalate a minor administrative delay into a significant financial crisis for a company.
By lowering these rates, the government intends to reduce the punitive nature of tax defaults, making it easier for businesses to regularise their tax status without the threat of crippling debt accumulation. This approach is part of a broader push to improve the ease of doing business in Nigeria and to expand the tax base through improved compliance rather than increased enforcement through heavy penalties.
The implementation of this order is expected to shift the focus of the tax authorities toward more collaborative compliance management. The Federal Inland Revenue Service (FIRS) will be required to update its automated collection and assessment systems to reflect the new interest rates as the order takes effect.
Tax experts suggest that the success of this move will depend on how effectively the new rates are communicated to the public and how transparently they are applied by the relevant tax agencies. The move remains a key component of the ongoing fiscal reforms aimed at modernising Nigeria’s revenue collection processes.
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