NEW DELHI - The Indian government has mandated offshore online gaming companies operating in the country to register the business locally or appoint a representative to pay tax on funds collected from customers.

Last week, India decided to levy a 28% tax on total funds collected by online gaming companies from gamers, and not on every bet.

Overseas online gaming companies operating in India will be blocked if they fail to register or appoint a representative or a proxy to pay tax in the country, according to amendments moved in Parliament on Friday.

"Offshore online gaming companies will not enjoy any tax arbitrage, and would be treated at par with their domestic counterparts," said Rajat Mohan, a partner at AMRG & Associates.

The move to tax online gaming companies has shocked the nascent $1.5 billion industry, which is backed by global investors. Over 100 gaming companies and top investors such as Tiger Global and Peak XV have written to the government, asking it to reconsider the decision.

"The decision (has been) taken after elaborate deliberations spanning over a period of about 3 years," said a source.

On Wednesday, Indian gaming app Mobile Premier League said it would lay off 350 employees as it takes steps to "survive" the tax imposed by the government.

India's finance minister and state ministers considered the negative impact of online money gaming "on the society and the youth in particular, in form of Internet Gaming Disorder due to addiction to online gaming," the source said.

The move "is not a ban, it is just a tax on online money gaming which is nothing but gambling by any name, and it deserves to be taxed at the highest rate," the source said.

The tax will not be applicable on online games that do not involve money.

(Reporting by Nikunj Ohri)