A VAT hike raises the price of consumption, the idea being that consumers pay a little extra so that the state has additional resources for public programs.

There is no shame in that, yet our government appears to be embarrassed by its own decision.

In the typical reactive style that has characterized domestic policymaking for years, the government rushed out a host of so-called “incentives” to coincide with the introduction of the 12 percent VAT rate, up from 11 percent.

And what a motley hodgepodge of measures it is.

The government graciously announced it would cover the additional 1 percentage point of VAT on flour, industrial sugar and the state-distributed Minyakita cooking oil, but only for an unspecified period of time.

It also intends to hand out 10 kilograms of rice per month to 16 million households categorized as poor, but only in January and February.

It wants to offer a 50-percent electricity discount in the same two-month period, as if everyone’s situation would suddenly improve in March, but only for households connected to power supply of up to 2,200 volt-amperes.

A VAT waiver on house purchases was extended as well, but only for certain properties and only for a portion of the price, and then, in the second half of 2025, only for a portion of that portion.

Whether incentives for car purchases are meant to soften the blow of the VAT hike is anyone’s guess, but the authorities also announced last week a temporary luxury sales tax (PPnBM) reduction for hybrid car purchases by 3 percentage points, with the exact rate depending on the type of vehicle. The policy only applies to locally manufactured cars with a specific level of local content.

Income tax cuts for workers, but only in labor-intensive industries and only those earning less than Rp 10 million per month, are to be introduced alongside the VAT hike, while half of the premiums for accident insurance will be covered by BPJS Ketenagakerjaan next year, but only for six months.

That is to name but a few of the incentives. More may well follow if there is enough of an outcry from some people over some policies.

With all those mitigating measures introduced, we must ask, is our government convinced hiking VAT was the right move? Based on what we are seeing, the answer is: Yes and no, or perhaps maybe.

We need some straight talk: VAT is meant to put a burden on consumers for the benefit of the state. However, we now have such a jumble of policies that consumers cannot know whether they are gaining or losing.

It is a bit like with mobile network operators, which tend to create so confusing an array of special offers for data plans and minutes, each with their own terms and conditions and some mutually exclusive but others that must be combined, that the user has no clue whether they are getting a good deal or not.

But, consumers aside, the complexity of measures is an even bigger headache for the government, which is getting bogged down by becoming overly involved, to a patronizing degree, in consumer choices.

Other institutions will foot much of the bill for now, such as the State Logistics Agency for the rice aid, power provider PLN for the electricity discount and the social insurance provider for the premium waiver. Yet the costs will eventually show in state coffers.

Finance Minister Sri Mulyani Indrawati also revealed that the state could have collected as much as Rp 265.5 trillion (US$16.73 billion) in additional tax revenue from goods and services exempted from the hike in 2025, and that is not taking into account the costs of the administrative nightmare of implementing all the measures across a population of 280 million.

A VAT hike with cashback does not come cheap.