MULTIPLE INDIAN entrepreneurs and developers in the Web 3.0 space are moving out of the country in a bid to shift base to more crypto 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 among those who have moved to Dubai in the last two years. This is in addition to a previous round of exits. ZebPay and Vauld moved to Singapore; CoinDCX now has an arm in Singapore.
This comes amid a progressive crackdown on cryptocurrencies, including enforcement action against some platforms, new rules and regulatory adjustments being issued every few weeks, even as there is a lack of clarity on long-term policy. .
Meanwhile, the United Arab Emirates and Singapore are among those actively promoting the ecosystem, offering investors political certainty and incentives to attract and nurture talent pools. According to industry insiders and unclear policy crypto exchange founders leaving India, several developers and engineers working in this space have already moved or are considering moving to Dubai and Singapore.
“We are in a bear market right now, and this is the time when products and solutions are built. Some of the biggest companies in the Web 2.0 space, like Google and Facebook, were also created during a downturn. This is why many people who are building crypto and Web 3.0 products are moving to jurisdictions with clearer policy,” said a senior executive at one of India’s largest crypto trading platforms who declined to be named. identified.
Another person who is building a blockchain platform said that in addition to looking for a friendly environment, there is also a lack of clarity about the government’s future stance from a law enforcement perspective.
Speaking to The Indian Express, Ashish Singhal, Co-Founder and CEO of CoinSwitch, said: “India has been fighting the brain drain for decades. This is a generational opportunity to reset the odds in our favor: cryptocurrencies have moved away from Silk Road to Main Street. Examples from the US and other mature economies show that institutional investors are ready to pour capital into crypto markets if there is more regulatory clarity. Indian investors and innovators can benefit from crypto capital if there is more regulatory clarity.”
Official recognition of cryptocurrency in India began in 2018, when the Reserve Bank of India ordered banks to reduce the supply of money to cryptocurrency trading platforms, a move that was overturned by the Supreme Court in 2020. Last year, the government included the introduction of a bill in Parliament to ban all private cryptocurrencies, but the bill was not introduced.
Earlier this year, during the Union budget for 2022-23, a 30% tax on virtual digital assets was introduced with different provisions than other asset classes. Later, the government also introduced a 1% tax deducted at source (TDS), starting July 1, on cryptocurrency transfers with the intention of keeping a money trail. The crypto industry has argued that the 1% TDS locks in investment capital for crypto traders and suggested that it should be kept at a low level of 0.1%.
Last week, in its latest move, the government issued guidelines detailing the responsibilities of various entities, such as cryptocurrency exchanges, buyers, sellers, and brokers, on the 1% TDS deduction. It put the onus on 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, the taxes will have to be deducted at the corresponding exchange rate.
Meanwhile, Dubai has become a hotspot for crypto investments thanks to its favorable policies. In March this year, Dubai established the Virtual Assets Regulatory Authority (VARA), which has been appointed to promote Dubai as a hub for virtual assets, attract investment and provide systems to protect investors. In addition, there is no income tax in Dubai and, aside from the 5% VAT, profits from the sale of virtual assets are virtually tax-free.
Responding to a query from The Indian Express about Shetty and Menon’s move to Dubai, WazirX said: “We are a remote organization with employees from over 70 locations. This gives all company employees the option to work from anywhere, subject to their comfort and convenience, unless they have to travel officially. WazirX is based in Mumbai and there are no changes to any of our operating procedures. It’s business as usual.”
WazirX, which is owned by the world’s largest cryptocurrency exchange Binance, said in its statement that current cryptocurrency regulations could reduce participation and increase inefficiencies rather than encourage more people to join the bandwagon. “Indian exchanges are KYC compliant and ensure transactions are secure and traders are protected against any security threats. However, due to current tax laws, there is a possibility that they will shift their capital to unregulated or decentralized P2P or foreign exchange,” she said.
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“This could become a challenge, not only for exchanges but also for the government to get revenue from taxes. But the most significant 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 said.
In June 2021, the Enforcement Directorate said that it had issued a justification notice to WazirX and its directors Shetty and Sameer Mhatre under the Foreign Exchange Management Act 1999, for transactions involving cryptocurrencies worth Rs 2,790.74 million rupees. According to the ED statement, it had launched a FEMA investigation based on an ongoing money laundering investigation into illegal Chinese-owned online gambling apps. At the time, WazirX had said that it complied with all applicable laws.
Earlier this year, Shetty announced a new crypto project, Shardeum, with US-based crypto investor Omar Sayed.
Multiple queries sent to Nailwal and Polygon went unanswered.
An email query sent to the Ministry of Finance elicited no response.