France’s constitutional council has struck down a top income tax rate of 75% introduced by Socialist President Francois Hollande.
Raising taxes for those earning more than 1 million euros has been a flagship policy for Francois Hollande.
The policy angered France’s business community and prompted some wealthy citizens to say they would emigrate.
Francois Hollande’s government said it would rework the tax, due to take effect in 2013, to meet the council’s complaints.
In its ruling on Saturday, the Constitutional Council said the new tax rate “failed to recognize equality before public burdens” because, unlike other forms of income tax, it was to be applied to individuals rather than households.
For example, that meant a household in which one person earned more than 1 million euros would pay the tax, but a household in which two people earned 900,000 euros each would not have to pay.
The council also rejected new methods for calculating the tax.
But Prime Minister Jean-Marc Ayrault said the government would press ahead with the new tax rate.
“The government will propose a new system that conforms with the principles laid down by the decision of the Constitutional Council,” he said.
The new rate was seen as largely symbolic since it would have only applied to some 1,500 people for a temporary period of two years.
But along with other tax rises, it has still been the subject of fierce debate in France.
French actor Gerard Depardieu recently announced he was moving to Belgium to avoid taxes, sparking a furious reaction from some on the left.
There was also speculation that people employed in high-income jobs like banking and finance would move elsewhere, including to London.
Francoise Hollande campaigned against the austerity policies used in many European countries affected by economic crisis, favoring higher taxes rather than spending cuts to bring down the deficit.
The 75% rate for high earners was included in the government’s 2013 budget, approved by parliament in September.