Hypothecated tax

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The hypothecation of a tax (also known as the ring fencing or ear marking of a tax) is the dedication of the revenue from a specific tax for a particular expenditure purpose.[1] Hypothecation is the pledging of assets.


A 2010 report by the World Health Organization offered four arguments in support of hypothecated taxes for health:[2]

  • Accountability and trust
  • Transparency
  • Public support
  • Protecting resources


A 2012 report by the Mercatus Center found that dedicating tax revenues to specific expenditures can be used by policymakers to mask increases in total government spending, and showed empirically that hypothecated taxes tend to result in an increase in total government size but have little effect on the expenditures to which they are tied.[3]


  • The most recent example of a hypothecated tax came when UK Chancellor George Osborne announced that proceeds from VAT on sanitary products (the so-called tampon tax) would be ploughed into women's charities.
  • Various Chinese imperial armed forces including the Beiyang Army were assigned the customs revenues of their region.
  • A hypothecated tax on tobacco products was used to fund VicHealth, a Victorian government body responsible for promoting good health, from 1987 to 1997. Since then, various other governments around the world have introduced similar hypothecated taxes on tobacco products.[4]

See also[edit]


  1. ^ British House of Commons: Hypothecated taxation
  2. ^ Hypothecation of tax revenue for health
  3. ^ The Effects of Dedicating Tax Revenues
  4. ^ "What we do". VicHealth. Retrieved 2014-02-11. 

Further reading[edit]