Smart GST Reforms in Recycling Can Unlock ?1.82 Lakh Crore for BharatÂ’s Circular Economy Story: CSE Study Report
GST
Dated:- 15-10-2025
PTI
NEW DELHI, October 14th: Uncollected Goods and Services Tax from informal recycling supply chains totaled ?65,300 crore in 2024-25, more than double the ?30,900 crore collected from formal sector operations, according to a Centre for Science and Environment report released Monday.
The gap could widen to ?1.73 lakh crore by 2035 under current conditions, the 'Relax the Tax' study projects, with formal collections reaching only ?86,700 crore against total estimated tax value of ?2.60 lakh crore in India's ?5 lakh crore recycling economy.
The report, available at cseindia.org/relax-the-tax-12819, estimates that approximately 95 per cent of paper and glass, 80 per cent of plastics, 90 per cent of e-waste, and 65 per cent of metals flow through informal chains where GST is not collected. The informal sector includes ragpickers, small dea
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bility shifts to the last visible entity in the supply chain-typically the formal recycler.
With scrap materials currently taxed at 18 per cent GST, the same rate as many finished goods, that spread makes paper-only trades attractive higher up the chain and pushes compliance risk toward the last visible, solvent entity-the recycler, according to the report. Much of India's plastic and other scrap originates from unorganized chains: ragpickers to small dealers to medium aggregators to major dealers, with GST typically entering only at the last leg when a major dealer invoices a recycler.
The report examines two policy scenarios that industry associations have referenced in their representations to government. The first involves Reverse Charge Mechanism for scrap materials, where the recycler rather than the middleman pays GST directly to government, eliminating the input tax credit claim process. Under RCM, liability shifts to the documented buyer-the recycler-who pays GST directly
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challenges beyond the headline tax rates, the study states. These include consumption-to-business flows left outside the GST framework, misclassification of materials, refund processing friction, and rate mismatches that strand input tax credits.
Lenders evaluating project financing for recycling infrastructure cite unpredictable cash flows as a primary concern when legitimate buyers face legacy liabilities for upstream non-compliance, the report states. This affects underwriting decisions for capacity expansion across plastics, paper, metals, and e-waste processing facilities.
A clearer line of sight on tax and credits typically lowers underwriting friction for plastics recycling investments including hot-wash systems, near-infrared sorting equipment, and de-odor units that lift resin quality, the report notes. For paper recycling, investments include pulping and fiber-recovery upgrades to meet recycled-content targets. In metals recycling, delayed projects involve compact shears
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The report recommends linking GST benefits to verified Extended Producer Responsibility flows to ensure that tax benefits track real material movement, not just paper trails. It also suggests establishing Common Facility Centres so MSME recyclers can upgrade quality and compliance capabilities.
Additional recommendations include developing city-level transition plans to map informal chains and create formalization pathways, and providing worker recognition and social protection for ragpickers and waste collectors who form the foundation of India's recycling ecosystem.
Beyond fiscal impacts, the report states that a strengthened formal recycling sector contributes directly to India's climate goals. By keeping plastics, metals, and paper in circulation, recyclers reduce demand for virgin materials, lower carbon emissions, and foster a circular economy that can scale nationally, according to the study.
The report notes that smarter GST rules can help India recover more materials,
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