Experts Warn Tax Hikes on Rich Could Trigger Capital Flight
Overview
Tax experts are urging the government to avoid increasing income tax surcharges on high earners or reintroducing a wealth tax in the upcoming Union Budget 2026-27. They warn that such fiscal measures could prompt wealthy individuals to relocate to lower-tax jurisdictions, potentially stifling investment and job creation in India.
Experts Caution Against Tax Hikes for High Earners
Tax advisors are strongly recommending that the government steer clear of raising income tax surcharges on affluent individuals or reviving a wealth tax in the forthcoming Union Budget 2026-27. Such policies, they contend, risk alienating wealthy taxpayers, encouraging relocation to jurisdictions with more favorable tax regimes, and ultimately hindering economic growth and employment opportunities.
Current Tax Structure and Fiscal Pressures
Currently, individuals earning over ₹50 lakh face surcharges on their income tax liabilities. The rates escalate with income brackets, reaching up to 25% under the new tax regime and 37% under the old regime for those exceeding ₹5 crore. These discussions arise amid estimates suggesting potential revenue shortfalls of around ₹2 lakh crore for the exchequer this fiscal year due to recent GST rate reductions and lower income tax collections, fueling speculation about the need for new revenue measures for the upcoming fiscal year's expenditure needs.
Risk of Capital and Talent Exodus
Amit Rana, Partner at PwC & Co LLP, highlighted that while progressive taxation is essential, excessive tax burdens can prove detrimental. "When you start making it very prohibitive, you run the risk of high-income earners wanting not to be in India, and that is possible in the world today," Rana stated, emphasizing the critical role of high-income individuals in fostering industries and creating jobs. Striking a careful balance is paramount.
Wealth Tax Inefficiency
Surabhi Marwah, EY India Tax Partner, echoed these sentiments, noting that elevated surcharges or a reintroduction of wealth tax could encourage high-net-worth individuals to move their capital or residency abroad. Wealth tax, previously abolished in 2015, proved inefficient due to low collections relative to administrative costs. Marwah suggested that adjustments to surcharges, leveraging robust data trails, remain a simpler policy option compared to complex asset valuation regimes. Gouri Puri from Shardul Amarchand Mangaldas & Co also warned of capital flight and discouraged entrepreneurship, citing global competition for investor-friendly tax environments.
