TIF FEB UI

Written by: Parsya Naira Intana, Jeslyn Angelica Wijaya, Awwahun Halim, & Kirana Larasati

Publication Date: 27th August 2024

What is UHNWI?

Ultra High Net Worth Individuals (UHNWI) is a term popularized by Knight Frank, UK's leading real estate consultant, that refers to individuals with USD 30 millions net worth or more. Knight Frank reported that there are 626,600 individuals globally who are categorized as UHNWI at the end of 2023. This number has grown 4,2% compared to a year earlier. Knight Frank Global also predicts that the number of crazy rich individuals in Indonesia will reach 651, growing by 17.1% by 2027.

So, does the predicted growth of UHNWI in 2027, as forecasted by Knight Frank in The Wealth Report, align with the growth in Indonesia tax revenue?

The projected growth of UHNWI is expected to boost tax revenue in Indonesia, with the initial aim of supporting infrastructure development in the country. However, according to data from the Directorate General of Taxes (DJP) in 2022, the number of UHNWI in Indonesia is very small compared to the total number of taxpayers. Out of the 66.35 million registered taxpayers, only 556 individuals fall into the category, which represents approximately 0.0009% of the total taxpayers.

The contribution of UHNWI to tax revenue is also minimal. As of the end of May 2023, their contribution to income tax (PPh 21) and personal income tax (OP) was only 0.00011% of the total tax revenue target. Projections for 2027 indicate that the contribution of UHNWI will remain very small, around 0.00013% of total tax. Therefore, even though the number of UHNWI is expected to increase, their contribution to tax revenue will remain very small.

This is due to the disparity in social strata. Additionally, many of them focus on maximizing their wealth, which often leads them to avoid paying taxes. Their main strategy in avoiding taxes is by keeping their wealth in the form of assets rather than cash.

Elon Musk, on his X page, stated that he no longer receives cash salary or bonuses from anywhere; he only owns stocks.
Apple CEO, Tim Cook, who earned $63 million and chose to cash out only $3 million of his income, while the rest is kept in assets, not cash.

Why do UHNWIs prefer to keep their money in the form of assets rather than cash to avoid taxes?

Stocks and other investment assets owned by individuals are not taxed until they are sold, allowing their wealth to grow tax-free until they decide to sell. As a result, stocks and assets are favored by them as a means to avoid taxes.

In response to the issue, the G20 nations are poised to implement a 2% tax on individuals with wealth exceeding US$1 billion. This agreement emerged from the meeting held on July 25-26th, 2024, aimed to establish a fairer and more effective international tax system. French economist, Gabriel Zucman, reports that billionaires currently pay taxes amounting to merely 0.3% of their wealth. Given that there are around 3,000 billionaires worldwide, a 2% tax could generate US$200 billion to US$250 billion annually, or about Rp4,000 trillion globally, with an average tax burden exceeding US$80 million per individual. This initiative is expected to provide substantial funding to assist developing countries in addressing climate change challenges.

Conclusion

In conclusion, although the number of UHNWI is increasing, their contribution to tax revenue remains very small. Even with global efforts like the G20's proposed 2% tax on billionaires, the impact on national tax revenue may be limited. However, such international measures could still generate significant funds for global issues.

References

Kenton, W. (2023, June 24). Ultra-High-Net-Worth Individual (UHNWI): Definition and Criteria. Investopedia. https://www.investopedia.com/terms/u/ultra-high-net-worth-individuals-uhnwi.asp

Knight Frank Research. (2024). https://content.knightfrank.com/resources/knightfrank.com/wealthreport/the-wealth-report-2024.pdf

Imantoro, L. W., Imantoro, L. W., & Imantoro, L. W. (2024, July 24). Proportional taxes for the crazy rich. Pratama Institute TRI by PT Pratama Indomitra Consultant. https://pratamainstitute.com/pajak-proporsional-untuk-crazy-rich/

Santia, T. (2024, July 28). Crazy Rich in G20 Countries Will Be Taxed, Sri Mulyani Explains. liputan6.com. https://www.liputan6.com/bisnis/read/5656532/crazy-rich-di-negara-g20-bakal-kena-pajak-ini-penjelasan-sri-mulyani

Kim, W. (2024, March 13). The billionaire's guide to doing taxes. Vox. https://www.vox.com/money/2024/3/13/24086102/billionaires-wealthy-tax-avoidance-loopholes

Gura, D. (2021, November 13). Progressives want a wealth tax for the super rich. Here's why it's hard to pull off. NPR. https://www.npr.org/2021/11/13/1054711913/progressives-wealth-tax-super-rich-elon-musk-jeff-bezos