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A Taxing Situation: GST and the Informal Sector

The Goods and Services Tax introduced 3 months ago has been billed as the biggest tax reform in India since Independence. What are the social and economic implications of this reform on those who are "unheard"? Has the role out of GST become yet another of example of top-down policy making without considering its implications on the poor and marginalised? Sasha Mosky, an intern at PRIA, discusses this in the context of informal recyclers in Ajmer.

On July 1st, 2017 Indians woke up to a new tax regime -- the Goods and Services Tax (GST). Billed as the biggest tax reform since India’s independence, it consolidated various state and central government taxes into a singular, nation-wide tax with the aim of improving the economic climate across the country.

In the days leading up to July 1st, I heard people making jokes about GST and speculating on how the new tax would affect them. Stores hosted “GST Sales”. As a foreigner, I didn’t think too much about the new tax’s social or economic implications; I read summaries in the news and moved on…

A few weeks later, I began my research in Ajmer, Rajasthan. Here, I became interested in the lived experiences of informal recyclers, namely those who collect various recyclable materials from solid waste streams to sell as their main source of income. Informal recyclers tend to be low caste and many have done this work since childhood, working alongside their parents. Informal recycling is often the only form of income for families and in my experience is usually done by women. Most of the women are illiterate and work without protective equipment; several single-handily support large families. In Ajmer, many of the people engaged in informal recycling activities live in one of two informal settlements. These settlements are organized around caste and lack many basic services. One settlement in particular has been stigmatized by members of Ajmer’s middle class population as unsafe and its residents untrustworthy. This stigma further contributes to the discrimination and lack of bargaining power faced by those engaged in informal recycling activities.

As Ajmer has no formal waste segregation system, informal recyclers play a huge role in recovering resources from households, roadsides and municipal dumping sites. As such, informal recyclers lessen the impact of waste on the environment and decrease the amount of materials ending up in Ajmer’s central landfill. Salvaged materials are cleaned, sorted, and then sent away to processing plants in Delhi or Jaipur to be melted down and then resold to various manufactures. This supply chain keeps costs down for manufacturers as recycled materials are often cheaper than virgin ones.

People engaged in informal recycling activities are incentivised by economic return. For each kilogram of plastic, metal, glass, or paper collected, individuals receive anywhere from Rs 5 to Rs 20 (7 cents to 30 cents per kilogram). When prices are low, it is not economically viable to collect certain materials, such as soft plastics. This means more materials are left for municipal governments to deal with, costing government solid waste management schemes more money. When prices for materials are high, more materials are metabolized by the informal sector, alleviating pressure from municipal systems.

Prices for recovered materials are set by a multitude of factors, all of which are reliant on a variety of dynamic elements, which are determined far away from the streets and settlements of Ajmer. However, these factors, which range from market demand to government policies to taxation, have very real implications for the livelihoods of individuals and families involved in informal recycling. One such example of this is GST. Previously, most recyclable materials were taxed at 2.5 percent. This tax was payable by the operators of large-scale processing plants, which are largely located in big urban centres, like Delhi and Jaipur. With the introduction of GST, however, all materials sold to large-scale processing plants are subject to 18 percent tax

Although the informal recycling sector in Ajmer does not pay GST directly, higher level dealers who are subject to GST look to maintain their profits by decreasing the amount paid per kilogram of material to secondary collectors. Secondary collectors in turn are then forced to pay less per kilogram to individual rag pickers to maintain their margins. As a result, it is the individual rag picker who has experienced the most drastic decrease in income since the introduction of GST. From Ajmer to Bangalore, the income levels of those involved in the informal recycling sector have been slashed by nearly 50 percent (see also “Rag pickers hit hard by GST”, The Hindu). In my field visits, many individuals shared with me that prices for common recycling materials, such as clear plastics, have fallen from Rs 10 per kilogram to Rs 5 per kilogram. Without any bargaining power, individual recyclers are forced to accept this new reality.

The role out of GST has become yet another of example of the real life implications of top-down policy making. Individuals involved in informal recycling are far removed from the central government’s decision making process, and today suffer the unexpected outcomes. A reform for “economic progress” has been implemented without a holistic social-environmental assessment, resulting in disproportionate implications for those citizens (the marginalised and the poor) who are the least equipped to deal with them.

Interestingly enough, a law passed in 2016 (by the same government) validates the role of informal recyclers in India’s solid waste management scheme. But the 18 percent tax on recyclable materials is working as a disincentive for recycling and is mis-aligned with the government’s keynote Swachch Bharat Mission, or “Clean India Mission”. In the past few weeks, many of the informal recyclers I spoke with have shared with me that recycling is becoming less and less viable. It now often means travelling farther or working longer days for less return. But they continue to collect materials daily as no other work is available. If nothing is done to protect the daily wages of those involved in informal recycling, the sector will collapse.

Individual recyclers in the informal sector lack bargaining power, a collective voice or meaningful grassroots organization. Without these the informal recycling sector will continue to face significant economic hardship as well as continued stigmatization from mainstream society.


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