Crypto Exchanges Decamp as Business Plummets 90% in India, Aiming for Future Return Amid Regulatory Uncertainty

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Crypto Exchanges Decamp as Business Plummets 90% in India, Aiming for Future Return Amid Regulatory Uncertainty

Source – The Indian Express

Crypto Firms Navigate Taxation Turbulence in India, Flee to Dubai, Yet Pin Hopes on Policy Shift in Upcoming Budget

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New Delhi, January 20, 2023 – In a turn of events, prominent cryptocurrency firms in India, including WazirX and Mudrex, witnessed a staggering 90% drop in business in 2023 due to hefty taxation imposed in 2022 on crypto assets. The Indian government implemented a 1% tax deducted at source on the transfer of crypto assets exceeding Rs 50,000 in value and a 30% tax on all profits. Struggling under these regulatory constraints and uncertainty, several crypto firms have made the strategic decision to shift their operations abroad, with Dubai emerging as a favorable destination due to its pro-crypto stance, clear regulations, and zero taxation on cryptocurrency holdings and profits.

Taxation Turmoil: From Boom to Bust

WazirX, India’s largest cryptocurrency trading platform with a turnover of $43 billion in 2022, faced a substantial setback in 2023, recording a meager $4 billion in business. The drastic decline is attributed to the taxation measures implemented by the government, causing the platform to rethink its business strategy. Similar challenges were encountered by Mudrex, a cryptocurrency investment firm founded in 2018, which lost nearly 90% of its business due to regulatory compliances.

The taxation measures include a 1% tax deducted at source on the transfer of crypto assets exceeding Rs 50,000 and a 30% tax on profits. This has prompted crypto firms to explore opportunities in Dubai, where the regulatory environment is more favorable, providing a significant contrast to the uncertainties faced in India.

Regulatory Uncertainty and Banking Challenges

The Reserve Bank of India (RBI) has long maintained a cautious stance on cryptocurrency trade, expressing concerns about the lack of underlying value in crypto assets and their potential risks to macroeconomic and financial stability. This skepticism has translated into challenges for crypto firms operating in India.

A stable connection between crypto trading accounts and bank accounts is essential for transactions, but Indian banks have been reluctant to collaborate with crypto exchanges due to regulatory uncertainties. The lack of ease of doing business has prompted crypto firms like WazirX to explore options in Dubai, where a more welcoming regulatory landscape prevails.

Exodus to Dubai: A Haven for Crypto Firms

Dubai has emerged as a preferred destination for Indian crypto firms seeking a more conducive business environment. The city’s clear regulations and zero taxation on cryptocurrency holdings and profits have attracted major cryptocurrency exchange firms. The Dubai Virtual Asset Regulatory Authority (VARA) regulates the crypto sector, providing businesses with much-needed certainty. The United Arab Emirates’ (UAE) zero-tax policy on cryptocurrency further adds to its appeal.

Rajagopal Menon, Vice-President of WazirX, highlighted Dubai’s pro-crypto stance, emphasizing that the city is actively welcoming crypto businesses. While these firms are currently operating from Dubai, there remains a glimmer of hope for a policy shift in the upcoming Union Budget in February, which could potentially encourage their return to India.

Industry Hopes for Policy Shift in Upcoming Budget

Despite the current challenges, industry players are optimistic about a potential policy shift in the upcoming Union Budget. The hope is that the government will reconsider its taxation measures and create a more conducive environment for crypto businesses to thrive in India.

Rajagopal Menon expressed this optimism, stating, “We are hoping at least some of it will happen in the budget. Ummeed pe dunya kaayam hai, crypto bhi (the world rests on hope, and so does crypto).”

The Maturing Landscape of Cryptocurrency Investments

Over the years, the landscape of cryptocurrency investments in India has evolved. Initially driven by short-term gain perspectives, investors are now adopting a long-term holding perspective. Ashish Singhal, Co-founder and Group CEO of PeepalCo, the parent company of CoinSwitch Kuber, emphasized the maturation of cryptocurrency investors, stating that people are now looking at cryptocurrency as a long-term investment.

Advocacy for Regulatory Clarity

In response to the challenges faced by crypto firms in India, the newly formed advocacy body, Bharat Web3 Association, has engaged with the government to address concerns related to the taxation of crypto assets. The association has requested a set-off on losses and the implementation of proper regulations to enable the growth of the crypto industry in India.

Rajagopal Menon stressed that cryptocurrency, if allowed with proper regulations and understanding, has the potential to transform the lives of ordinary Indians and contribute to financing India’s rural economy. He emphasized that cryptocurrency, when used responsibly, embodies democracy in its purest form.

As crypto firms navigate through taxation turbulence and regulatory uncertainties, the industry remains hopeful for a positive policy shift in the upcoming budget, which could set the stage for their return to India.

This evolving landscape reflects the challenges and opportunities in the crypto industry, with firms balancing regulatory compliance and business sustainability in a rapidly changing environment

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