SEVERAL INDIAN entrepreneurs and developers in the web 3.0 space are leaving the country in an effort to shift bases to more crypto-friendly destinations.
The co-founders of India’s largest cryptocurrency exchange WazirX, Nischal Shetty and Siddharth Menon, have moved to Dubai with their families. Polygon co-founder Sandeep Nailwal is also one of those who have moved to Dubai in the past two years. This adds to an earlier series of departures. ZebPay and Vauld moved to Singapore; CoinDCX now has a branch in Singapore.
It comes amid a gradual crackdown on cryptocurrencies, including action by enforcement authorities against some platforms, new rules and regulatory changes released every few weeks, even if long-term policies are unclear.
Meanwhile, the United Arab Emirates and Singapore are among those actively promoting the ecosystem, providing political certainty to investors and providing incentives to attract and foster talent pools. According to industry insiders and unclear policies, with the departure of the crypto exchange’s founders from India, several developers and engineers working in this space have already moved or are planning to relocate to Dubai and Singapore.
“We are currently in a bear market and that is when products and solutions are built. Some of the largest Web 2.0 companies, such as Google and Facebook, were also founded during a recession. This is why many people creating crypto and web 3.0 products are moving to jurisdictions with clearer policies,” said a senior executive at one of the largest crypto trading platforms in India who declined to be named.
Another person who built a blockchain platform said that in addition to seeking a friendly environment, there was also ambiguity about the future position of the government from a law enforcement perspective.
Ashish Singhal, co-founder and CEO of CoinSwitch, told The Indian Express, “India has been fighting brain drain for decades. This is a generational opportunity to reset the odds in our favor – crypto has moved from Silk Road to Main Street. Examples from the United States and other mature economies show that institutional investors are willing to inject capital into crypto markets with greater regulatory clarity, while Indian investors and innovators can benefit from crypto capital with greater regulatory clarity.
India’s official recognition of cryptocurrency began in 2018, when the Reserve Bank of India ordered banks to cut the supply of currency on crypto trading platforms – a move that was reversed by the Supreme Court in 2020. Last year, the government announced the introduction of a bill in parliament to ban all private cryptocurrencies, but the bill has not been introduced.
Earlier this year, during the EU’s 2022-23 budget, a 30% tax on virtual digital assets was introduced with different provisions than other asset classes. Later, the government also introduced a 1% withholding tax (TDS) – effective July 1 – on cryptocurrency transfers with the intent of preserving cash flows. The crypto industry has argued that the 1% TDS is holding investment capital for crypto traders and suggested keeping it at a low 0.1%.
Last week, in its latest ruling, the government issued guidelines outlining the responsibilities of various entities such as crypto exchanges, buyers, sellers and brokers regarding the 1% TDS deduction. It is the responsibility of the entity closest to the buyer to deduct the TDS. The direct tax department also said that even if there is an exchange of one cryptocurrency for another, tax will have to be deducted at a corresponding exchange rate.
Meanwhile, Dubai has become a hotspot for crypto investments thanks to favorable policies. In March this year, Dubai established the Virtual Assets Regulatory Authority (VARA), which was appointed to promote Dubai as a hub for virtual assets, attract investment and provide systems to protect investors. Moreover, in Dubai there is no income tax and the income from the sale of virtual assets, apart from 5% VAT, is virtually tax free.
In response to a question from The Indian Express about Shetty and Menon’s move to Dubai, WazirX said: “We are a third-party organization with employees in more than 70 locations. This gives all employees of the company the flexibility to work from anywhere, depending on their comfort and convenience, unless they have to travel officially. WazirX is headquartered in Mumbai and there are no changes to our operating procedures. It is business as usual.”
WazirX, which is owned by the world’s largest crypto exchange, Binance, said in its statement that current crypto regulations may reduce participation and increase inefficiency rather than encourage more people to join the movement. . “Indian exchanges are KYC compliant ensuring transactions are safe and traders are protected from security risks. However, due to current tax laws, it is possible for them to transfer their capital to unregulated or decentralized P2P or foreign exchanges,” he said.
Report † Click to get the best explanation of the day in your inbox
“It can become a challenge not only for the stock exchanges, but also for the government to generate tax revenues. But the main implication will be the downside to the Web3 space, where it will intercept innovation and job creation as entrepreneurs move to countries with more crypto-friendly policies and taxes,” he stated.
In June 2021, the Enforcement Branch said it had sent a demonstration notice to WazirX and its directors Shetty and Sameer Mhatre under the Exchange Management Act 1999 for transactions involving cryptocurrencies worth Rs 2,790.74 crore. According to the ED statement, he had opened an FEMA investigation based on an ongoing money laundering investigation into Chinese-owned illegal online gambling apps. At the time, WazirX declared to be in compliance with all applicable laws.
Earlier this year, Shetty announced a new crypto project, Shardeum, with US-based crypto investor Omar Sayed.
Several questions sent to Nailwal and Polygon went unanswered.
An email request to the Ministry of Finance has not yielded a response.