RCM + 1% Rate: How Two GST Tweaks Can Flip ?86,700 Cr Loss Into ?1.82 Lakh Cr Gain & Create India's Largest Green Jobs Surge
GST
Dated:- 1-10-2025
PTI
A Call for GST Reform based on CSE Report
NEW DELHI, September 30, 2025 – India's recycling sector faces a critical fiscal crisis: the government currently collects ?30,900 crore from formal recycling but loses ?65,300 crore annually to informality-driven tax leakages double the revenue collected. By 2035, under status quo, collections may reach ?86.7K crore but losses could escalate to ?1.82 lakh crore, resulting in a net negative of ?86.7K crore.
According to the Centre for Science and Environment's (CSE) 2025 report titled “Relax the Tax” (https://www.cseindia.org/relax-the-tax-12819), two targeted GST reforms could flip this loss into a net positive of ?1.82 lakh crore through full formalization with a 12% rate transforming India's ?5 lakh crore recycling economy.
The Compliance Paradox: Legitimate Businesses Pay fo
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fail to remit GST, the last visible recycler becomes liable, facing penalties, interest, and unexpected tax reversals. Even relatively small infractions can freeze working capital for months, stalling expansion and discouraging reinvestment in infrastructure.
“We follow the rules, pay our dues, and still end up paying for fraud committed by others in the supply chain,” says one recycler in Delhi.
In some cases, companies have reported ITC reversals that turn ?1 crore worth of tax credits into a ?2.5 crore liability after penalties and interest are applied.
Where the 'Tax Pipe' Leaks: The Informality Crisis
The CSE report confirms this reality: informality dominates the very chains these entrepreneurs depend on approximately 95% in paper & glass, 80% in plastics, 90% in e-waste, and 65% in metals. These are precisely the streams where tax leakages occur.
With scrap taxed at 18%, the same as many finished goods, that spread makes paper-only trades attractive higher up the chai
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ps finished goods at 18% but removes the arbitrage that drives fraud. Shrinking that spread reduces the payoff from fake billing without touching tax at value-add. Bringing down the GST rate on plastics, metals, paper, and e-waste to around 1% would make recycling financially viable, enabling entrepreneurs to invest in better technology, scale their operations, and reduce dependence on informal channels.
Some representations also flag exemption for scrap as an option, though this is considered controversial.
The Fiscal Revolution: CSE's Scenario Modeling
CSE's scenario modeling finds that every reform pathway flips losses into gains. The strongest case full formalization with a 12% rate yields an estimated net positive of ?1.82 lakh crore.
The fiscal stakes are material. CSE estimates that today formal recycling brings in ?30,900 crore of GST, while leakages tied to informality are ?65,300 crore. On a status-quo path to 2035, collections rise to ?86,700 crore but losses escalat
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alities would see improved waste segregation, less landfill burden, and more efficient material recovery. This, in turn, could stimulate local economies and enhance the viability of sustainable business models.
According to industry estimates, these reforms could create up to 1 million jobs within the recycling sector over the next decade, particularly in sectors like plastic sorting, metal recovery, and paper recycling.
Moreover, a strengthened recycling sector contributes directly to India's climate goals. By keeping plastics, metals, and paper in circulation, recyclers reduce the demand for virgin materials, lower carbon emissions, and foster a circular economy that can scale nationally.
The CSE Roadmap: Beyond Tax Reform
Beyond the headline rate, CSE flags operational frictions that keep cash uneven: C2B flows left out of the net, misclassification, refund friction, and rate mismatches that strand credits.
The report also recommends:
• Linking GST benefits to verified E
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India's recycling industry, represented by leading associations, is urging policymakers to consider these reforms as part of India's broader green economy strategy. The recommendations from the CSE report provide a clear roadmap for:
• Implementing RCM for scrap materials to ensure tax collection at the point of accountability
• Reducing GST rates on scrap to eliminate arbitrage opportunities that fuel fraud
• Establishing infrastructure support through CFCs for MSME recyclers
• Integrating EPR compliance with GST incentives
The Bottom Line
Smarter GST rules can help India recover more, waste less, and bring the green economy into the mainstream. Prevention is better than punishment. Collect tax where accountability is strongest, narrow the spread that invites fraud, and build a system where compliance pays.
Recycling is a capex story hiding inside a tax story. Stabilize cash, and projects move from pilot to plant. With RCM and a lower scrap rate, plus practical enab
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