India’s Finance Ministry is pushing forward a sweeping reform of the Goods and Services Tax (GST) system. Designed to simplify the current five-tier framework into just two main slabs—5% (for essentials) and 18% (for most goods)—the plan also proposes adding a punitive 40% tax slab for “sin and luxury” items, including tobacco, alcohol, luxury cars, and gambling.

Immediate Market Impact

In just one trading session, stocks of tobacco, alcohol, and online gaming operators plunged—some by as much as 4.5%—amid investor anxiety over the proposed 40% levy. For instance, shares of companies like Nazara Technologies and Delta Corp notably declined, reflecting the shockwaves this policy shift is creating.

Industry Fears: A “Death Blow” to Real-Money Gaming

The online gaming industry is still adapting to the 28% GST implemented in October 2023. The prospect of an even steeper rate has triggered dire warnings:

Anonymous industry executive: “This move would be catastrophic.… Jumping to 40% will wipe out small and mid-sized operators, trigger mass layoffs, and stifle innovation. Many companies will have no option but to shut down operations entirely.” 

Tax Base Debate: Deposits vs. Gross Gaming Revenue (GGR)

The impact of the proposed tax hinges heavily on the valuation method:

• If applied to player deposits (full face value): Platforms typically earn only 5–10% of bets as Gross Gaming Revenue (GGR). A 40% tax on deposits would eclipse revenues—creating an impossibility for business models to survive.

• If applied to GGR instead: Though somewhat more realistic, a 40% tax remains one of the harshest globally. Even then, it would exert crippling pressure on margins.

Legal & Policy Uncertainties

The GST Council has yet to make a formal ruling. The matter is currently being reviewed by multiple Groups of Ministers (GoMs), with final recommendations expected by September or October.

Meanwhile, the Supreme Court has reserved its verdict in the high-stakes Gameskraft case, which could define how online gaming is categorized—and possibly influence GST valuation mechanisms.