India dream of a thriving circular economy is being strangled by its own tax policy, according to a new report by the Centre for Science and Environment (CSE). The think tank’s August 12 study, Relax the Tax, warns that applying the same Goods and Services Tax (GST) rate to recycled materials as to virgin ones is discouraging sustainable practices, driving legitimate recycling businesses into the informal economy, and costing the country tens of thousands of crores in lost revenue each year.
Recycling and Virgin Materials Taxed the Same
Under the current GST structure, a company recycling plastic bottles, e-waste, or scrap metal pays an 18% tax the same rate as a company producing goods from fresh raw materials. The outcome? Industries choose virgin materials over recycled ones, as there’s no financial incentive to opt for the sustainable route.
“It’s like taxing someone who refurbishes old furniture at the same rate as someone cutting down fresh trees,” the CSE report notes.
The Informal Sector’s Grip
With the formal recycling sector struggling to survive under this tax burden, many operators have gone underground, running cash-only businesses that avoid GST altogether. This shift has created a dangerous cycle millions of waste workers are now operating in hazardous, unregulated conditions, handling toxic materials without safety gear or fair wages.
The financial toll is staggering: the government loses ₹65,000 crore annually in uncollected GST from the waste sector a figure projected to rise to ₹86,700 crore by 2035 if no action is taken.
The CSE study outlines a clear path forward: lower GST rates for recycled materials, reduce compliance barriers for informal workers, and create incentives for businesses to process waste legally. According to CSE estimates, these changes could transform the sector from a loss-making liability into an ₹1.8 lakh crore economic opportunity while delivering environmental benefits and improving livelihoods for millions.
Nivit Kumar Yadav, CSE’s Industrial Pollution Programme Director, calls the current policy “a tragedy in plain sight.” He explains, “We are penalising the very sectors that could drive India’s sustainable manufacturing future. Rationalising GST rates on recycled materials would not just reform taxes it would unlock India’s potential as a global leader in the secondary materials market.”
The Human Cost
Beyond lost revenue, the current system perpetuates worker exploitation. Informalwaste pickers often among the poorest in society face daily exposure to hazardous waste, lack access to social security or healthcare, and work with outdated, unsafe equipment. Bringing them into the formal sector isn’t just economically sound, the report says it’s “a moral imperative.”
A Clear Choice for Policymakers
The government now faces a choice: continue with a tax policy that undermines environmental goals, drains public revenue, and leaves millions in dangerous jobs or embrace reform that could deliver economic, social, and environmental wins.
For now, the CSE report leaves one pressing question hanging over Delhi’s corridors of power: Will India have the vision and courage to tax in favour of its future, not against it?