- WazirX, India’s largest crypto exchange, faced a 90% business drop due to tax laws.
- RBI’s skeptical view on crypto led firms to shift focus from India to Dubai.
- WazirX revolutionized Indian crypto trading with its user-friendly P2P platform.
Launched in 2018, WazirX swiftly grew to become the largest cryptocurrency exchange in India by 2022, boasting a remarkable turnover of $43 billion. However, in the following year, the company witnessed a drastic 90% decline in its business, with its turnover plummeting to just $4 billion.
This downturn wasn’t unique to WazirX, as several cryptocurrency firms in India faced challenges following the introduction of stringent tax regulations by the Indian government in 2022. These policies led many companies to relocate their operations, with Dubai becoming a popular destination. Specifically, in 2022, the Indian government implemented a 1% tax deducted at source (TDS) on the transfer of cryptocurrencies and other virtual digital assets (VDAs) valued over Rs 50,000. Additionally, a hefty 30% tax was levied on all crypto-related profits.
The Reserve Bank of India has also expressed its reservations about cryptocurrencies, consistently arguing that they lack intrinsic value and pose potential threats to the broader macroeconomic and financial stability.
WazirX, at its inception, revolutionized the cryptocurrency trading landscape in India with its user-friendly peer-to-peer (P2P) platform. This innovation significantly simplified and expedited the process of crypto conversion. The platform quickly gained popularity, attracting thousands of users who traded millions of dollars in cryptocurrencies daily.
“That took the Indian crypto scene by storm and helped us become India’s largest crypto exchange.”
Rajagopal Menon, vice-president of WazirX
Dealing with elevated tax burdens and a climate of regulatory ambiguity, WazirX has strategically relocated a portion of its operations to Dubai. Despite this shift, the company maintains its operational base in Mumbai.
As this trend of relocation continues among crypto firms, industry stakeholders are optimistic about potential changes in the forthcoming Union Budget in February, which could enable them to re-establish their presence in India.
Menon, speaking to ThePrint, expressed this sentiment of hope: “We are hoping at least some of it will happen in the budget. Ummeed pe dunya kaayam hai, crypto bhi.”
Menon highlighted that, in addition to the tax challenges, the Reserve Bank of India’s (RBI) cautious approach towards cryptocurrencies like Bitcoin and Ethereum has also led crypto businesses to reconsider their operations in India.
For effective cryptocurrency transactions, it’s crucial to have a seamless link between a crypto trading account and a bank account. However, Indian banks have been apprehensive about engaging with crypto exchanges, influenced by the RBI’s ongoing reservations about cryptocurrency, as Menon elucidated.
He pointed out, “The lack of ease in conducting business here poses significant challenges.”
Meanwhile, Dubai has emerged as a favorable destination for crypto firms, primarily due to its welcoming stance towards cryptocurrencies, clear regulatory framework, and absence of taxation on crypto operations. These factors have attracted major Indian cryptocurrency exchanges to Dubai, aligning with its ambition to be the “financial capital of the Middle East”.
The cryptocurrency sector in Dubai is regulated by the Dubai Virtual Asset Regulatory Authority (VARA), which offers a level of regulatory clarity and stability that businesses seek. Additionally, the United Arab Emirates benefits from a policy of no taxation on cryptocurrency holdings and profits, further enhancing its appeal to crypto businesses.
“Dubai is attracting these people to bring in more talent, companies and investments which will in turn generate revenue and a thriving ecosystem. They are rolling out the red carpet.”
Rajagopal Menon, vice-president of WazirX
Edul Patel, co-founder and CEO of the cryptocurrency exchange Mudrex, has navigated the uncertain regulatory landscape by expanding his company’s operations to the United States, while also retaining a presence in India.
In an interview, Patel revealed that since Mudrex’s establishment in 2018, the platform has attracted nearly a million users and has raised approximately $22 million. However, he pointed out that regulatory challenges have led to a significant downturn in business, with most players in the market experiencing a loss of about 90 percent.
Given these circumstances, many cryptocurrency firms are shifting their focus away from India. Patel noted, “While some companies continue their operations in India, there’s a growing trend of expansion towards Dubai, which is a financially affluent region with substantial assets.” This trend underscores the ongoing shift in the global crypto industry in response to varying regulatory environments.
