Several Indian Web 3.0 entrepreneurs and developers are leaving the country in order to relocate to more crypto-friendly locations.
Nischal Shetty and Siddharth Menon, co-founders of India’s largest cryptocurrency exchange WazirX, have relocated to Dubai with their families. Sandeep Nailwal, the co-founder of Polygon, is also among those who have relocated to Dubai in the last two years. This comes on top of an earlier round of departures. ZebPay and Vauld have relocated to Singapore, and CoinDCX now has a Singapore branch.
This comes amid a gradual crackdown on cryptocurrencies, including enforcement action against some platforms, new rules and regulatory tweaks issued every few weeks, and a lack of policy clarity in the long run.
Meanwhile, the UAE and Singapore are among those actively promoting the ecosystem, providing investors with policy certainty as well as incentives to attract and develop talent pools.Several developers and engineers working in this field have already relocated to Dubai and Singapore, according to industry insiders, and unclear policy has led to the founders of cryptocurrency exchanges leaving India.
We are currently in a bear market, which is when products and solutions are developed. Some of the most successful Web 2.0 companies, such as Google and Facebook, were founded during a slowdown period.
This is why many people working on crypto and Web 3.0 products are relocating to jurisdictions with more policy clarity, said an unnamed top executive at one of India’s largest crypto trading platforms.
Another blockchain platform developer stated that, in addition to seeking an amicable environment, there is a lack of clarity on the government’s future stance on law enforcement.
“India has battled brain drain for decades,” Ashish Singhal, co-founder, and CEO of CoinSwitch told The Indian Express. This is a once-in-a-generation chance to shift 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 eager to invest in cryptocurrency markets if regulatory uncertainty is reduced. If there is more regulatory accuracy, Indian investors and innovators can gain from crypto capital.
The Reserve Bank of India directed banks to cut money supply to cryptocurrency trading platforms in 2018, which was overturned by the Supreme Court in 2020. The government planned to introduce a Bill in Parliament last year to prohibit all private cryptocurrencies, but the Bill was never tabled.
Earlier this year, during the Union Budget for 2022-23, a 30% tax on virtual digital assets with provisions distinct from other asset classes was introduced. Later, the government imposed a 1% tax deducted at source (TDS) on cryptocurrency transfers, effective July 1, in order to keep a financial trail. The crypto industry has argued that the 1% TDS locks up investment capital for crypto traders and that it should be reduced to 0.1 percent.
In its most recent move, the government issued guidelines outlining the responsibilities of various entities such as cryptocurrency exchanges, buyers, sellers, and brokers in deducting the 1% TDS. It placed the burden of deducting TDS on the entity closest to the buyer. The direct tax department also stated that even if one cryptocurrency is exchanged for another, the tax must be deducted at the Dubai corresponding exchange rate.
Meanwhile, due to its favorable policies, Dubai has emerged as a hotspot for crypto investments. Dubai established the Virtual Assets Regulatory Authority (VARA) in March of this year with the goal of promoting Dubai as a virtual asset hub, attracting investments, and providing systems to protect investors. Furthermore, in Dubai, there is no income tax and, with the exception of a 5% VAT, gains from the sale of virtual assets are virtually tax-free.
In response to The Indian Express’s inquiry about Shetty and Menon’s relocation to Dubai, WazirX stated, “We are a remote-first organization with employees from over 70+ locations.” This allows all company employees to work from anywhere, subject to their comfort and convenience, unless they are required to travel on official business. WazirX is headquartered in Mumbai, and none of our operating procedures have changed. Everything is as usual.
WazirX, which is owned by the world’s largest crypto exchange Binance, stated in a statement that current crypto regulations may reduce participation and increase inefficiencies rather than encouraging more people to jump on board. Indian exchanges are KYC compliant, ensuring that transactions are secure and traders are protected from security threats. However, because of current tax laws, they may be able to shift their capital to unregulated or decentralized P2P or foreign exchanges, it said.
This could pose a problem not only for the exchanges but also for the government’s ability to collect taxes. The more significant implication will be a disadvantage to the Web3 space, where it will stymie innovation and job creation as entrepreneurs relocate to countries with more favorable crypto policies and taxes,it said.
According to the Enforcement Directorate, WazirX and its directors Shetty and Sameer Mhatre were given a show-cause notice in June 2021 for transactions involving cryptocurrencies worth Rs 2,790.74 crore, under the Foreign Exchange Management Act, 1999.
According to the ED statement, the FEMA investigation was launched in response to an ongoing money-laundering investigation into Chinese-owned illegal online gambling applications. WazirX claimed to comply with all applicable laws at the time.
Shetty announced a new crypto project, Shardeum, earlier this year with US-based crypto investor Omar Sayed.
Several inquiries sent to Nailwal and Polygon went unanswered.
An e-mail sent to the Ministry of Finance received no response.
A CoinDCX spokesperson issued the following statement: We wish to inform you that we have no plans to leave India and that our Singapore arm has been operational for a very long time. We also want to mention that we recently announced CoinDCX Ventures and received a D series funding, showing our commitment to India and future plans.