In its renewed bid to minimise tax evasion, deter non-compliance and promote voluntary compliance, the Federal Government of Nigeria has announced a new interest rate regime for unpaid taxes. The Minister of Finance, through a recent communique, directed the Federal Inland Revenue Service (FIRS) to implement a 5% spread on the Central Bank of Nigeria (CBN) Monetary Policy Rate (MPR) for 2017, on the interest rate charged for tax payments not made within the statutory timeframe.
Consequently, the current practice of applying a flat rate of 15% by FIRS as interest charge on unpaid taxes is expected to cease. With the current CBN official rate of 14%, total interest charge on unpaid taxes will go up to about 19% (i.e. 14% MPR plus a spread of 5%).
It could be recalled that the FIRS had in 2014 and 2015 issued two separate public notices retaining the interest rate chargeable in default of payment of taxes at 15%. However, this practice was questioned by various stakeholders as to the powers of FIRS to fix interest rates. This defect seems to have been cured with the directive of the Minister, as S. 32(1)(b) of the Federal Inland Revenue Establishment Act (FIRSEA) empowers the Minister to determine the spread to be added to the MPR (official interest rate) issued by the Central Bank of Nigeria (CBN).
Effective date for implementation of the new interest rate is 1 July 2017.
We will continue to monitor developments in this space and update you as further facts become available. In the meantime, we advise taxpayers to promptly evaluate potential tax exposure with the aim of closing any identified compliance gap(s) before the implementation date.