Small companies into online real money-based gaming will not survive due to the high Goods and Services Tax of 28 per cent, industry body All India Gaming Federation said on Wednesday.

Finance Minister Nirmala Sitharaman has announced that a 28 per cent GST on the full-face value of bets placed on online games will be implemented from October 1.

"We believe the decision by the GST Council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs, will no longer be able to survive in the face of the increased tax liability of 400 per cent," AIGF said in a statement.

The industry body said that only established and well-entrenched skill gaming companies may be able to scrape through this change by using their existing capital reserves to counter the effects of substantially increased tax liability.

"However, even their revenues and valuations will significantly fall. Additionally, companies at their early growth stages, particularly those within the startup and the MSME sector, will be disproportionately impacted. Moreover, the rampant illegal offshore gambling websites will thrive as efforts to block them have been ineffective till now," AIGF said.

Sitharaman has said there would be a review of the levy after six months of its implementation.

E Gaming Federation (EGF) and Federation of Indian Fantasy Sports (FIFS), in a joint statement, said the government has addressed the industry's concerns on the issue of repeat taxation.

"The new tax framework, while clarifying and resolving uncertainty, will lead to a very burdensome 350 per cent increase in GST and set the Indian online gaming industry back several years. However, it will allow gaming companies a fighting chance to innovate and rebuild the foundation of gaming in India," the joint statement said.

TMT Law Practice's Managing Partner Abhishek Malhotra said the decision of the GST Council is not unexpected but nevertheless is going to have a huge negative impact on the industry. 

"While it is slated to be reviewed six months after implementation, there does not seem to be any indication of a rollback. What is worse is that the plan is to introduce this amendment by way of clarification. This means that the impact could be retrospective. A clear indication of that is the filing of the SLP in the Gameskraft matter. It is doubtful that the amendments would pass a constitutional challenge," Malhotra said.

WinZO's Co-Founder Saumya Singh Rathore said the online skill gaming sector is not homogeneous and has fairly diverse, nascent, and distinct business models that should be evaluated more carefully.

"GST on deposits rather than the technology platform commission charged by the companies will make the unit economics unviable, wiping out 80 per cent of the industry, with fatality concentrated in MSMEs and startups that house new age business models. "This increase of 400 per cent will solely encourage the rise of monopolistic play," Rathore said.

Head Digital World (A23) SVP Siddharth Sharma said the GST will shackle the company's and the industry's growth for the foreseeable future. "We remain committed to providing a seamless, enjoyable, yet safe gaming experience for our users, and we are confident our focus on innovation will propel us forward despite the immediate hurdle," Sharma said.