Question

Hypothecation taxation has been discussed as one way of improving the public’s perception and acceptance of new taxes and tax increases in particular with regards to “green taxes”.

YOU ARE REQUIRED TO:

1. Explain, using an example, what is meant by the term hypothecation taxation. (maximum word count 40 words)

2. Critically discuss whether hypothecation could assist the UK government in meeting its green tax objectives. (maximum word count 360 words)

Answer 1

A) Hypothecation taxation refers to the process of dedicating the revenues from a specific source of tax to a particular form of expenditure. For eg, in Eygpt the tax revenue received from tabacco is used help to cover health insurance and provide prevention and rehabilitation for students.

B) Hypothecation refers to enmarking the taxes for a specific purpose. The major drawbacks with this way of funding is the fluctuation in the taxation reveues that could hamper the purpose designated for its use. Overcomin this problem could assist in implementing a green taxation objectives. Green taxation proves to be disintensive way towards environmental degradation and optimal energy utilization. The main advantage of hypothecation is that is may get readly accepted byt the public if its purpose becomes transparent and it effectively the purpose and taxes both are utilised. Hypothecation of the taxes may assit the Uk Government in achieving greem objective if they make this transparent and let people know what they are paying for. For eg, if they hypothecate the NHS, they at the time of need the government could look forward to increasing the taxes if required by the NHS.