Recently, the India-based organization for the defense of crypto and Web3 has called for the adoption of measures against offshore entities.
The president of the Bharat Web3 Association (BWA) sent a letter to the Indian government on December 16th. Offshore exchanges have been notified and have a two-week deadline to respond to the dispute notice.
Let’s see below all the details.
Web3: The BWA Initiative against offshore entities in the crypto world
As anticipated, the decision of the Indian government to block the URLs of nine offshore exchanges, announced on Thursday, was made in response to an official request from the Indian crypto and Web3 defense entity.
A letter dated December 16, written by the president of the Bharat Web3 Association (BWA), Dilip Chenoy, has been addressed to the Secretary of the Department of Revenue of the Indian Ministry of Finance, Sanjay Malhotra.
Foreign exchanges have been notified and have two weeks to respond to the show cause notice. This raises questions about the actions that could be taken against them, as reported by an anonymous source.
However, the BWA letter proposed a one-month grace period for offshore exchanges to register with the Financial Intelligence Unit (FIU) of India, which is subordinate to the Ministry of Finance.
It is not immediately clear whether the BWA initiative triggered the government action or if it was taken unilaterally.
In March, the Indian Ministry of Finance had imposed on cryptocurrency companies to register with the FIU and adhere to the Prevention of Money Laundering Act (PMLA). So far, 31 national entities have registered with the UIF.
Specifically, Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global, and Bitfinex are the involved exchanges.
The action taken by local entities linked to cryptocurrencies against foreign exchanges is unusual and almost unprecedented, as local exchanges usually do not urge the government to intervene against offshore ones.
This happens in a context where Indian cryptocurrency exchanges struggle to survive.
They are indeed trying to expand their activities, following the heavy taxes imposed by the government. In particular, a 30% tax on cryptocurrency profits and a 1% transaction tax deducted at source (TDS).
The TDS on the crypto sector in India: estimated losses of $420 million
A think tank has analyzed in detail how the implementation of Tax Deducted at Source (TDS) has pushed around 5 million cryptocurrency traders in India to transfer their transactions abroad.
Specifically, an estimated potential revenue loss of $420 million has been reported since July 2022.
The report revealed that Indian users have moved over $3.8 billion in trading volume from local exchanges to international ones in response to the controversial cryptocurrency regulations.
The Bharat Web3 Association (BWA) has submitted a letter asking the government to require offshore exchanges to establish an Indian branch or entity.
In addition, it has requested to apply the TDS deposit starting from July 1, 2022 and. In case of non-compliance, to limit access through mobile app stores and block the IP addresses of such platforms. It is not yet clear if these requests will have legal consequences.
The requests for equality
The BWA letter emphasized the need to ensure equal conditions. This especially in relation to taxation and the 1% TDS, considered negative factors for the cryptocurrency activity in India.
Indian exchanges, represented by BWA, are seeking a 30-day period to allow traders to withdraw their assets before any restrictions.
Rajagopal Menon, Vice President of WazirX, a major cryptocurrency exchange in India, stated:
“We are addressing the issue of 1% TDS because it is negatively impacting our business.”
Sumit Gupta, co-founder and CEO of CoinDCX, highlighted the constant commitment of Indian exchanges, led by BWA, to ensure equal conditions.
Especially as investors migrate to offshore platforms that evade tax regulations and the 1% TDS.
Sumit Gupta has positively welcomed the recent steps taken by UIF IND towards offshore Virtual Digital Assets Service Providers (VDA SP). He believes that they are capable of mitigating risks, protecting users from potential frauds, and promoting the development of a secure VDA ecosystem.