Crypto businesses are reportedly leaving India due to regressive tax policies and unclear regulatory measures. They are shifting to crypto-friendlier countries, such as Singapore or UAE.
Reports suggest that close to 30-50 crypto companies had to shut down their operations and move out of India, including the most prominent players in the industry. Co-founders of India’s largest crypto exchange, WazirX, recently moved to Dubai.
Polygon’s co-founder Sandeep Nailwal also moved to Dubai. ZebPay crypto exchange has moved to Singapore. CoinDCX, which achieved unicorn status in 2021, also moved to Singapore.
Why Do Companies Leave India?
India has the second biggest crypto market share, according to a report by Chainanalysis. However, the current brain drain in India’s crypto industry is driven by the unclear regulatory environment and lack of support from the Indian government.
India has been trying to impose a shadow ban on the crypto industry. In July 2018, the Reserve Bank of India started prohibiting Indian banks from facilitating transactions with digital assets. Coinbase was launched in India, but the exchange was prohibited from letting users add money through the United Payment Interface (UPI) system.
The Indian government insists on regulating the market by applying a harsh taxation policy. With the current tax burden in India, crypto businesses can not compete anymore with the existing overseas exchanges.
On April 1, 2022, the 30% crypto income tax came into effect. On top of this, from July 1, all payments towards crypto and virtual digital assets beyond 10,000 rupees (about US$129) will be liable for a 1% tax deducted at source.
Virtual digital assets (VDA) in the form of gifts shall also be subjected to taxation. While calculating income, investors can’t deduct the transactional cost and interest cost of borrowing. Additionally, the basic income exemption limit is also not applicable to income from transferring cryptocurrencies.
Indian tax authorities also plan to implement a 20% tax on DeFi gains as well as the highest 28% rate of goods and services tax on cryptocurrency transactions. The strict policy resulted in crypto trading volume dropping by 30%.
Searching for Crypto-Friendly Countries
Many countries are still developing crypto frameworks, but some have an early mover advantage by legalizing crypto. Countries like UAE, the US, Mauritius, Singapore, and the Cayman Islands are attracting the blockchain industry.
In contrast to predatory taxes in India, UAE applies only a 5% value-added tax for earnings from digital assets, making the country almost tax-free for crypto. As a result, Dubai has become an epicenter of crypto-driven businesses and investment. Singapore is also a hot destination for crypto businesses, as it doesn’t levy any tax on crypto purchases.