New Delhi, Aug 12 (PTI) The steep GST of 18 per cent levied on several crucial waste categories has become an obstacle in the sustainable management of solid waste in India and is also leading to revenue losses of around Rs 65,000 crore, according to a new study published on Tuesday.

The study by think tank Centre for Science and Environment (CSE) finds that small dealers who collect scrap cannot afford an 18-per cent GST, so they keep their transactions cash-based and untaxed.

This not only deprives the government of revenue but also distorts the market, as compliant businesses struggle to compete with tax-evading informal operators.

In fact, the informal sector dominance results in an estimated Rs 65,000 crore in annual GST losses due to unrecorded transactions. Without interventions, this loss is projected to escalate to Rs 86,700 crore by 2035.

"While India is rooting for recycling of waste and promotion of a circular economy, the existing GST regime could be dumping all that effort into the proverbial 'waste bin'. For one, the regime does not differentiate between virgin and recycled materials, taxing them equally, which places recycled products at a severe cost disadvantage despite their lower environmental impacts," said Nivit K Yadav, programme director, industrial pollution unit, CSE.

"Metal scrap, including ferrous and non-ferrous materials essential for secondary steel and aluminum production, faces this high tax rate, making formal transactions economically unviable for small dealers," said Subhrajit Goswami, programme manager at CSE.

This flies in the face of the National Steel Policy, which aims for 40 per cent of India's steel production to come from scrap by 2030. The 18-per cent GST on ferrous scrap makes it economically unviable for small dealers to operate formally. A reduced rate would align the fiscal policy with the country's circular economy objectives, says Goswami.

Similarly, plastic waste, electronic waste and various industrial by-products are subjected to an 18-per cent GST, creating a significant cost burden that pushes operators toward informal, cash-based transactions.

Goswami said this high taxation particularly impacts e-waste recycling, where valuable materials like gold, silver and rare earth elements could generate substantial formal economy revenues if properly incentivised through lower tax rates.

Speaking at the report release, Pranshu Singhal of NGO Karo Sambhav concurred: "No one actually looks at waste as a resource. They wake up only when both natural resources and waste are taxed at the same rates for them." India's waste management sector is dominated by informal operators, who handle up to 90 per cent of certain waste streams like e-waste and metal scrap.

"Policies have focussed more on the EPR (Extended Producer Responsibility) rules, which manage to cover about 30 per cent of the waste but the remaining major chunk of waste (70 per cent) is handled by the informal sector," Sandip Chatterjee of the Sustainable Electronics Recycling International (SERI) said.

Millions of informal workers handle hazardous waste like batteries and e-waste without safety gear or fair wages. The CSE said formalising their work with social security, better pricing and access to healthcare is not just an economic necessity, it is a moral obligation.

The study recommends lowering the GST rates on critical waste streams, such as metal scrap, plastics and e-waste, from 18 per cent to 12 per cent in the short term, with a further reduction to 5 per cent. This would encourage and incentivise compliance while maintaining revenue neutrality.

Even a 50-per cent reduction in informal sector participation, combined with a 12-per cent GST rate, could generate Rs 62,384 crore in net revenue by 2035.

The report proposes integrating informal workers into government schemes and providing them access to subsidised loans, healthcare and pensions.

To strengthen Extended Producer Responsibility (EPR) compliance, the report suggests linking GST benefits to verified recycling. Producers who meet EPR targets through formal channels could receive tax rebates, creating a self-reinforcing cycle of compliance and transparency. PTI GVS RC