When Can the Japanese Government Impose Fees and Levies? Understanding the Principle of Legality in Administrative Action

The power of a government to impose financial burdens on its citizens and corporations is a cornerstone of public administration, yet it is also an area ripe for potential overreach. In Japan, as in many other developed legal systems, this power is not absolute. It is constrained by fundamental legal principles designed to protect individuals and entities from arbitrary exactions and to ensure that governmental authority is exercised within the bounds of the law. This article delves into one such core principle: the "Principle of Legality in Administration" (法律による行政の原理 - Hōritsu ni yoru Gyōsei no Genri), particularly as it applies to public impositions (kōka), using a significant Supreme Court case as a central point of analysis.

The Bedrock: The Principle of Legality in Japanese Administrative Law

The Principle of Legality in Administration dictates that all administrative actions must have a basis in law and must conform to the law. This principle serves as a fundamental safeguard against arbitrary government action and is a key tenet of the rule of law in Japan. It encompasses several sub-principles, including the idea that administrative agencies cannot act without legal authorization (no action without law) and must not act contrary to the law (supremacy of law).

Historically, this principle has roots in the German concept of Gesetzmäßigkeit der Verwaltung. In the context of imposing burdens on citizens, especially financial ones, a more specific aspect of this principle, often referred to as "legal reservation" (法律の留保 - hōritsu no ryūho), becomes critical. This means that actions infringing upon the rights and freedoms of citizens, such as the imposition of taxes or other levies, require a clear and explicit basis in a statute enacted by the Diet (Japan's parliament) or, in certain contexts, a local ordinance passed by a local assembly. This is distinct from, though related to, the older "infringement reservation theory" (侵害留保説 - shingai ryūho setsu), which also posited that administrative infringements on citizens' rights and liberties require a legal basis. The modern understanding is broader, emphasizing democratic legitimacy and predictability.

Tax Legalism: Article 84 of the Constitution and Its Ramifications

The most stringent form of the Principle of Legality concerning financial impositions is found in Article 84 of the Constitution of Japan, which enshrines the principle of "tax legalism" (租税法律主義 - sozei hōritsu shugi). It states: "No new taxes shall be imposed or existing ones modified except by law or under such conditions as law may prescribe." This constitutional mandate ensures that the power to tax, a significant infringement on private property rights, is exercised only with the consent of the people, as expressed through their elected representatives in the Diet.

Tax legalism is generally understood to comprise two core elements:

1. Principle of Taxable Object Legality (課税要件法定主義 - kazei yōken hōtei shugi): All essential elements of a tax—such as the taxpayer, the taxable object, the tax base, and the tax rate—must be clearly defined by law. Delegation of these essential elements to administrative discretion through vague or overly broad statutory language is generally impermissible.
2. Principle of Clarity in Taxable Object (課税要件明確主義 - kazei yōken meikaku shugi): The legal provisions defining the tax elements must be clear and unambiguous, enabling taxpayers to foresee their tax obligations and preventing arbitrary application by tax authorities. This principle acts as a corollary to the first, ensuring that the legal framework is not only formally present but also practically understandable and predictable.

A crucial question arises regarding the scope of "law" (hōritsu) in Article 84, particularly whether it includes local ordinances (jōrei) enacted by local public entities. While Article 84 is situated in the chapter on national finance, the prevailing view and judicial practice suggest that its underlying principles extend to local taxes as well. Local taxes must generally be based on local ordinances, which in turn must be authorized by or be within the framework of national laws (such as the Local Tax Act). The Supreme Court, in the case we will examine shortly, touches upon this by stating that public charges should be governed by "law or ordinances enacted within the scope of law".

The Asahikawa National Health Insurance Premium Case: A Landmark Decision

The application and scope of these principles, especially concerning impositions other than formal "taxes," were significantly clarified by the Supreme Court of Japan in its Grand Bench judgment of March 1, 2006 (Minshū Vol. 60, No. 2, p. 587), often referred to as the Asahikawa National Health Insurance Premium case.

Background of the Case:
The case involved a resident of Asahikawa City, Hokkaido, who was the head of a household and a general insured person under the National Health Insurance Act. He challenged the legality of the national health insurance premiums (国民健康保険料 - kokumin kenkō hokenryō) imposed by the city for the fiscal years 1994 to 1996. The plaintiff argued, among other things, that the city ordinance, which delegated the determination of the premium rates to a public notice by the mayor based on a somewhat flexible calculation of the total assessable amount, violated the principles of tax legalism under Article 84 of the Constitution and the National Health Insurance Act itself due to lack of clarity and excessive delegation.

The Asahikawa City's ordinance stipulated that the total amount of insurance premiums to be collected would be based on the estimated expenses for the national health insurance program, minus estimated revenues from other sources (like national subsidies and a portion from the city's general account). This total assessable amount was then divided into four components (income-based, asset-based, per-capita flat rate, and per-household flat rate), and the mayor would determine and publicly notify the specific rates for these components after the fiscal year had begun. The plaintiff argued that this system, particularly the estimation of expenses and revenues and the determination of the final rates by the mayor, involved too much policy discretion and lacked the clarity required by law.

The Supreme Court's Judgment:
The Supreme Court ultimately ruled against the plaintiff, upholding the legality of the city's ordinance and the imposed premiums. However, its reasoning provided crucial insights into the application of constitutional fiscal principles to non-tax public charges.

1. Direct Application of Article 84 Denied: The Court first distinguished national health insurance premiums from "taxes" as envisioned by Article 84. It stated that taxes are financial burdens imposed by the state or local governments based on their taxing power to fund general expenditures, without being a direct quid pro quo for specific benefits received by the taxpayer. National health insurance premiums, on the other hand, are collected as consideration for the benefit of being eligible to receive insurance payouts (medical benefits). Even though a significant portion of the National Health Insurance program is funded by public money and enrollment is compulsory, the Court found that this did not sever the link between the premiums and the potential benefits, nor did it transform the premiums into taxes in the constitutional sense. Therefore, Article 84 of the Constitution was not directly applicable to these insurance premiums.
2. "Purport" of Article 84 Extends to Non-Tax Levies: Crucially, however, the Court did not stop there. It went on to state that while Article 84 directly regulates taxes, it embodies a broader legal principle: that imposing obligations or restricting citizens' rights requires a legal basis, and this principle is merely made stricter for taxes. Consequently, public charges other than taxes (kōka) should also be subject to appropriate regulation by law or by ordinances enacted within the scope of law, depending on their nature. The Court reasoned that it would not be appropriate to automatically exclude all non-tax levies from the purview of the principles underlying Article 84 simply because they are not formal taxes.For public charges that are similar to taxes in terms of the degree of compulsion in their collection, the "purport" (趣旨 - shushi) of Article 84 should be considered to extend to them. National health insurance premiums, with their compulsory enrollment and collection mechanisms, were found to possess such a tax-like character.
3. Differentiated Standards for Clarity and Delegation: When the "purport" of Article 84 applies, the required degree of clarity in the legal provisions and the permissible scope of delegation to administrative discretion are not identical to those for formal taxes. The Court emphasized that public charges vary widely in nature, purpose, and the degree of compulsion involved. Therefore, the stringency of the requirements must be judged by comprehensively considering these factors. For national health insurance premiums, while their compulsory nature invoked the purport of Article 84, their specific purpose—funding the National Health Insurance program—and their nature as social insurance contributions also needed to be taken into account. The use of premiums is restricted to the expenses of the National Health Insurance program, unlike general taxes.
4. Assessment of the Asahikawa Ordinance: Applying this framework, the Supreme Court found that the Asahikawa City ordinance was not unconstitutional or illegal.
   • Clarity of Calculation Standards: The ordinance did provide a clear standard for calculating the total assessable premium amount: it was to be based on the rational forecast of the shortfall between the necessary expenses for the National Health Insurance program and the revenues (excluding premiums). The items constituting these expenses and revenues were also specified in detail.
   • Allowable Discretion for Technical Matters: The ordinance's provision allowing the mayor to determine the rates based on "estimated" expenses and revenues, and to adjust for anticipated uncollectable premiums (using an "expected collection rate"), was deemed a delegation of authority concerning "specialized and technical details". The Court considered that such estimations, which involve forecasting and technical calculations, are appropriately left to the reasonable judgment of the executive branch.
   • Democratic Control: Furthermore, the Court noted that the budget and settlement of accounts for the National Health Insurance special account are subject to deliberation and approval by the city assembly, providing a mechanism for democratic control over these estimations and the overall financial management of the program.
   • Timing of Rate Notification: The fact that the specific premium rates were notified by the mayor after the commencement of the fiscal year was also not found to violate the purport of Article 84, as the calculation standards were established in the ordinance by the assessment date, and the subsequent rate determination based on these standards to achieve a fiscal balance did not involve arbitrary judgment and did not undermine legal stability.

The Court also touched upon the distinction between premiums (hokenryō) and national health insurance taxes (kokumin kenkō hokenzei). While premiums are not directly subject to Article 84, if a municipality chooses to collect national health insurance contributions in the form of a "tax" (an option provided by law), then Article 84 would apply directly because of the form chosen, even though the purpose is similar to that of premiums. This obiter dictum has generated considerable academic discussion regarding the substantive versus formal application of constitutional fiscal principles.

The Nature of Public Impositions: Quid Pro Quo and Compulsion

The Asahikawa decision highlights two key characteristics often used to distinguish taxes from other public charges: the presence or absence of a direct quid pro quo, and the degree of compulsion involved in their collection.

• Quid Pro Quo (Opposite Benefit - 反対給付性 hantai kyūfusei): Taxes are generally characterized by the absence of a direct, specific benefit received by the taxpayer in return for the payment. They fund general public services. Fees or charges, on the other hand, are often levied as consideration for a specific service, permission, or benefit (e.g., a usage fee for a public facility, a license application fee). Social insurance premiums, like those for national health insurance, are considered to have a quid pro quo element in that they are paid in exchange for eligibility for insurance benefits, even if the individual's premium amount and the benefits eventually received do not perfectly align at the micro level.
• Compulsion (強制性 - kyōseisei): Both taxes and many other public charges are collected compulsorily. The degree and nature of compulsion can vary. For national health insurance, enrollment is mandatory by law, and premiums are subject to compulsory collection procedures similar to taxes. This high degree of compulsion was a key reason the Supreme Court found the "purport" of Article 84 applicable to the premiums.

The interplay of these factors is complex. A charge might have a quid pro quo element but still be highly compulsory. The Asahikawa ruling suggests that even if a public charge is not a "tax" in the strictest constitutional sense due to some quid pro quo, if its collection is highly compulsory and resembles taxation, then the underlying principles of legalism and clarity derived from Article 84 should still guide its imposition. This ensures that citizens are protected from arbitrary or excessively vague financial demands from the government, regardless of the formal label attached to the levy.

"Law" in Article 84: Does It Include Local Ordinances?

As mentioned earlier, a significant question in the context of tax legalism is whether the term "law" (hōritsu) in Article 84 of the Constitution, which primarily refers to statutes enacted by the National Diet, can also encompass ordinances (jōrei) enacted by local public entities.

The academic discourse presents a few views:

1. Local public entity charges fall under "taxes" in Article 84, but ordinances are not "law" under Article 84.
2. Local public entity charges do not fall under "taxes" in Article 84, and thus ordinances are not "law" under Article 84.
3. Ordinances are included in "law" under Article 84.

The Asahikawa Supreme Court decision, by stating that public charges should be regulated by "law or ordinances enacted within the scope of law" when the purport of Article 84 applies, appears to lean towards a view that accommodates ordinances as a legitimate basis for such impositions, provided they are within the framework established by national law (akin to view 3, or a nuanced version of view 1). This acknowledges the fiscal autonomy of local governments (guaranteed by Article 92 of the Constitution, which refers to the "principle of local autonomy") while maintaining the overarching requirement for a clear legal basis rooted in democratic processes. The first-instance court in the Asahikawa case had invoked Article 92 of the Constitution to argue that the direct basis for local public charges should be ordinances, not Diet-enacted laws.

The logic is that if the "purport" of Article 84 (which demands a clear legal basis from a representative body) extends to certain local charges, then the enactments of the local representative body (the assembly, through ordinances) can satisfy this demand, as long as such ordinances are consistent with higher-level national legislation.

Public Charges by Public Corporations (e.g., National Health Insurance Associations)

The Principle of Legality also extends to charges imposed by public corporations or associations that perform public functions, such as National Health Insurance Associations (kokumin kenkō hoken kumiai). These entities, while not direct arms of the national or local government, may be empowered by law to levy contributions from their members.

Shortly after the Asahikawa Grand Bench decision, the Supreme Court addressed a case concerning levies imposed by an agricultural mutual aid association (Max. Ct. March 28, 2006, Hanrei Jihō No. 1930, p. 83). The Court held that while Article 84 did not directly apply to these mutual aid contributions (as they were not taxes imposed by the state or local government based on taxing power), the "purport" of Article 84 did extend to them due to their compulsory nature. However, the Court found no violation of this purport. It reasoned that the Agricultural Disaster Compensation Act delegated the specific determination of these contributions to the association's articles of incorporation or the resolutions of its general assembly. This delegation was considered reasonable as it entrusted the decision-making to the autonomous governance of the association, subject to democratic control by its members. This implies that for such functional self-governing bodies, the "law" or its equivalent satisfying the Principle of Legality can take the form of their own democratically legitimized internal rules, within the framework set by enabling statutes.

Clarity of Ordinances and the Scope of Delegation

When an ordinance is the legal basis for a public charge subject to the purport of Article 84, the ordinance itself must meet certain standards of clarity and limit the scope of delegation to executive discretion, similar to how a Diet-enacted statute would. The Asahikawa judgment provides a framework for assessing this.

The Court found that the Asahikawa City ordinance was sufficiently clear because:

• It established the fundamental criteria for calculating the total assessable premium amount (balancing estimated income and expenditure of the insurance program).
• The items to be included in these income and expenditure estimates were detailed.
• The delegation to the mayor to determine specific rates based on these criteria and estimates, including adjustments for projected uncollectability, pertained to "specialized and technical details" rather than fundamental policy choices that must be made by the legislature. This acknowledges that certain aspects of rate-setting require expertise and flexibility that are better handled by the executive.
• Crucially, the Court also pointed to the democratic oversight exercised by the city assembly through its approval of the budget and settlement of accounts for the national health insurance special account. This was seen as a check on the mayor's discretion in making the estimates.

This approach suggests a balance: while the core elements of a public imposition must be defined by the elected body (local assembly via ordinance), the implementation details involving technical calculations and estimations can be delegated to the executive, provided the ordinance sets clear guiding principles and there are mechanisms for democratic accountability. The supplementary opinion by Justice Takii in the Asahikawa case also noted that, in the context of National Health Insurance, where the local assembly acts somewhat like the decision-making body of an insurance group, allowing the mayor some leeway in determining the total assessable amount, subject to budgetary oversight, could be permissible from the perspective of "insurer autonomy". However, he also acknowledged that a city assembly representing all residents is not perfectly analogous to an insurer's decision-making body representing only the insured.

The degree of specificity required in an ordinance will depend on the nature of the public charge. Charges that are highly compulsory and widely affect citizens will likely demand a higher degree of clarity and less delegation than charges that are more voluntary or affect a narrower group.

Conclusion: Upholding Legality and Fairness in Public Impositions

The Principle of Legality, and its specific manifestation in tax legalism under Article 84 of the Constitution, plays a vital role in ensuring that the Japanese government's power to impose financial burdens is exercised fairly, predictably, and with democratic legitimacy. The Asahikawa National Health Insurance Premium case is a significant landmark, clarifying that even for public charges that are not formally "taxes," if they possess tax-like characteristics such as a high degree of compulsion, the underlying "purport" of Article 84 applies.

This means that such impositions must be grounded in clear legal provisions, typically found in ordinances enacted by local assemblies (within the framework of national law), which themselves must define the essential elements of the levy and avoid excessive delegation of discretionary power to the executive. While executive bodies may be entrusted with determining technical details and making necessary estimations, the fundamental policy choices and calculation standards must be set by the elected representatives. Furthermore, democratic oversight mechanisms, such as budgetary approval by assemblies, are considered important safeguards.

For individuals and businesses operating in Japan, this framework provides a degree of protection against arbitrary or unclear public charges. It underscores the importance of scrutinizing the legal basis of any fee, levy, or premium imposed by national or local authorities and ensures that such financial obligations are not created or altered without due process and clear legal authority. While the Asahikawa judgment upheld the specific ordinance in question, it also reinforced the judiciary's role in examining the legality and reasonableness of how public impositions are structured and administered in Japan.