Budget 2026: Govt should avoid hiking surcharge on super-rich, reviving wealth tax; why experts warn of capital flight
Tax experts have cautioned the government against raising the income tax surcharge on high-income individuals or reintroducing a wealth tax in the Union Budget 2026-27, warning that such moves could push wealthy taxpayers to relocate to low-tax jurisdictions and hurt investment and job creation.At present, individuals earning over Rs 50 lakh are subject to a surcharge on income tax — 10 per cent on income between Rs 50 lakh and Rs 1 crore, 15 per cent for Rs 1–2 crore, and 25 per cent for Rs 2–5 crore. Those earning above Rs 5 crore pay a 25 per cent surcharge under the new tax regime, while the surcharge is 37 per cent under the old regime, PTI reported.According to estimates by independent economists, recent GST rate cuts and lower income tax collections could cost the exchequer around Rs 2 lakh crore in the current fiscal, prompting debate on whether additional revenue measures may be needed in FY27 for higher spending on defence and other priorities.Risk of high earners relocatingPwC & Co LLP Partner Amit Rana said while the principle of taxation is based on vertical equity, excessively high taxes can be counterproductive.“We have a pretty good slab, wherein at the highest level you pay 42 per cent, at the lowest level you pay almost zero, even at reasonable income levels. But, 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 told PTI.He added that high-income individuals play a key role in creating industries and generating jobs, making it essential to strike a careful balance in taxation.EY India Tax Partner Surabhi Marwah echoed similar concerns, saying high surcharges or a return of wealth tax could prompt high-net-worth individuals to move capital or residency abroad.“Tax uncertainty and steep effective rates may play a role in decisions around capital relocation and residency. Stability and predictability in the tax regime may be as important as the rates when the objective is to retain capital and talent,” she said.Marwah noted that wealth tax was abolished in 2015 as collections did not justify the administrative effort involved. She added that surcharges are generally viewed as more efficient and less litigious than asset-based taxes.“With the government now having access to robust data trails through GST, CRS agreements and other systems, policymakers may continue to see surcharge adjustments as a relatively simpler option compared to asset-based valuation regimes,” she said.Wealth tax seen as inefficientShardul Amarchand Mangaldas & Co Partner Gouri Puri said higher tax rates could encourage capital flight and discourage entrepreneurship.“Capital flight is a genuine risk since mobile families can re-domicile to other jurisdictions with lower rates. There is always global competition to keep tax regimes investor-friendly, and harsher taxes in India may discourage investment and push capital away,” she said, adding that a wealth tax would also revive concerns over compliance costs and administrative complexity.Deloitte India Partner Alok Agrawal pointed out that the government had already reduced the highest surcharge from 37 per cent to 25 per cent in Budget 2023 for individuals earning above Rs 5 crore under the new tax regime, bringing down the maximum marginal tax rate from about 42.7 per cent to 39 per cent.“This applied from April 1, 2023, and was applicable only under the new tax regime. So, it seems unlikely that the government would hike this once again within a short span of three years,” he told PTI.On wealth tax, Agrawal said collections from such a levy have historically been small relative to the cost of administration.“The government’s focus has instead been on improving tax collections through more robust enforcement by leveraging technology and information-sharing with other countries,” he added.
