Following an official request for the same from the advocacy organization of the Indian crypto and Web3 association, the Indian government decided to block the URLs of nine offshore exchanges and send show cause notices on Thursday, as revealed in a letter seen by CoinDesk.The letter, dated December 16, was submitted to Sanjay Malhotra, the Department of Revenue Secretary in the Indian Finance Ministry by Dilip Chenoy, the Chairman of the Bharat Web3 Association (BWA).
According to a source who spoke on condition of anonymity because they were not authorized to comment on the topic, the offshore exchanges have been given two weeks to answer to the show cause notice, which asks why actions against them shouldn’t be brought.However, the BWA letter requested a grace period of one month for offshore exchanges to register with the Finance Ministry of India’s Financial Intelligence Unit (FIU).The government might have taken the measure unilaterally as well, but it wasn’t immediately apparent if the BWA letter was the only factor in the decision.
The Finance Ministry of India issued a mandate in March requiring cryptocurrency businesses to register with the FIU, the nation’s anti-money laundering body, and adhere to additional procedures under the Prevention of Money Laundering Act (PMLA).Since then, 31 domestic entities have created accounts with the FIU.
The nine exchanges include MEXC Global, Bitfinex, Bittrex, Bitstamp, Huobi, Kraken, Gate.io, Binance, KuCoin, and Huobi. During the year-end holiday season, CoinDesk reached out to all of the entities but received no response.
As long as local exchanges haven’t requested that the government take action against offshore exchanges, the action taken by local crypto-related companies against international exchanges is uncommon, if not wholly unusual.This is a reaction to crippling levies the country imposed on the cryptocurrency business, which included a 30% tax on profits and a 1% tax deducted at source (TDS) on all transactions. Since then, Indian cryptocurrency exchanges have been operating in survival mode and attempting to expand.
According to a think tank, the TDS caused up to 5 million Indian cryptocurrency dealers to shift their transactions overseas and may have cost the government $420 million in income since it went into effect in July 2022.The survey also showed that following the announcement of the contentious crypto regulations, Indian traders shifted more than $3.8 billion in trading activity from domestic to foreign cryptocurrency exchanges.
In addition, the BWA letter requested that the government require the offshore exchanges to create an Indian subsidiary or entity, that they deposit the applicable TDS starting on July 1, 2022, and that, in the event that they fail to comply, that access to these platforms be blocked from mobile app stores and their IP addresses be restricted.If every request from the BWA feature in the show cause notices is fulfilled, it is unclear.The letter was crucial in that it requested that before any limitations be put in place, the government give Indian shops 30 days to remove their assets.
“All we are asking for is a level playing field,” said Rajagopal Menon, Vice President of prominent Indian crypto exchange WazirX which has also been embattled in a dispute with Binance over ownership. “We are focusing on the 1% TDS issue because that is what is affecting our business.”
The CEO and co-founder of CoinDCX, a prominent cryptocurrency exchange, Sumit Gupta, stated that BWA and other Indian exchanges have continuously pushed for fairness, especially in light of investors’ migration to offshore platforms that are exempt from 1% TDS and taxes.
“FIU IND’s recent steps toward offshore Virtual Digital Assets Service Providers (VDA SPs) will mitigate risks, protecting users and investors from potential scams and fostering the development of a secure VDA ecosystem,” Gupta said.