On the 31st March 2022, the Indian Government introduced a 30 percent tax on cryptocurrency. The Government proceeded to introduce the new law despite several warnings from stakeholders who were concerned the negative impacts the law would most likely have on India’s crypto industry.
As a result of the new laws several Indian cryptocurrency projects are planning to move their bases to reside in more crypto-friendly jurisdictions.
As predicted, within less than month of the new crypto tax law coming into effect, trading volume across major crypto exchanges dropped by as much as 90 percent. The decline in trading activity was as result of traders either moving their funds away from centralized crypto exchanges or adopting a holding strategy over trading.
Many crypto exchanges were hoping that a crypto tax would at least offer some form of recognition to the crypto ecosystem and help them get easy access to banking services. However, the effect has been unfortunately been very much the complete opposite.
On Thursday 7th April, the National Payment Corporation of India (NPCI) issued a statement claiming they were not aware of any crypto platforms using the Unified Payments Interface (UPI) the national fiat payment gateway.
Although crypto exchanges were not using the UPI directly, they previously partnered with several payment processors with UPI access to facilitate fiat to crypto onboarding.
This is a common strategy incorporated by several leading crypto platforms around the world. Binance has done it in the United Kingdom, Malaysia and a few other jurisdictions after it was prohibited from directly accessing the national fiat payment gateway in respective countries.
Following the NPCI’s statement on 7th April, however, payment service providers ostensibly from an overabundance of caution toward the government’s hostile stance on crypto began to sever ties with crypto platforms.
Now, Indian crypto exchanges can’t even find a third-party payment processor despite the newly introduced crypto tax laws.
This, combined with the draconian tax policy, is causing crypto platforms in the country to consider moving to more crypto favorable jurisdictions, with Dubai being a primary choice.
“Unfair tax policies in India are making people consider alternative countries like UAE for their new projects. On the other side, people are more likely to consider working for foreign countries to avoid tax confusion. India needs to fix up their taxation laws for the crypto industry,” says Sathvik Vishwanath, CEO of Indian crypto exchange Unocoin.
the Indian crypto ecosystem has thrived over the past few years, producing several unicorns despite a lack of regulatory clarity. Many stakeholders of the ecosystem had expressed faith in the government with hopes of getting some clarity soon. However, with the regressive tax laws coming into effect, many crypto platforms are already deciding to move abroad.
A local crypto educator and expert familiar with the matter who preferred to remain anonymous says that Polygon, one of India’s leading Ethereum scaling solutions, is looking to shift its base along with Push Token to Dubai. None of these firms responded to the queries of Cointelegraph at the time of publishing.
“India’s dithering on whether to embrace digital assets is causing thousands of developers, YouTubers, startups, investors and traders to leave for places with more friendly regulation countries like Dubai or El Salvador. According to a recent report, the Dubai DMCC Free Zone has said 16% of the new company registrations recorded in Q1 of 2022 were crypto and blockchain companies. Millions of young talented Indians from various disciplines have left Indian soil in search of better opportunities. Most countries are encouraging Web3, metaverse and blockchain development.”
The general consensus among the crypto world is that the Indian government has failed to submit a draft crypto bill despite assurance on the same since 2018. At the same time, it has hurriedly formulated new crypto tax laws within two months that are heavily inspired by the country’s gambling and betting laws.
One of the biggest criticisms about the government latest decision is that the Indian government has failed to take onboard any input from stakeholders in the crypto ecosystem and the disastrous impact is for everyone to see within the first month.
In March 2022, Polygon co-founder Sandeep Nailwal warned about the possible crypto brain drain scenario. In March 2022 he argued that the Indian government’s approach toward crypto would certainly lead to a crazy brain drain situation
“I want to live in India and promote the Web3 ecosystem. But, overall, the way the regulatory uncertainty is there and how big Polygon has become, it doesn’t make sense for us or for any team to expose their protocols to local risks,” says Polygon co-founder Sandeep Nailwal.