- The offshore exchanges have been given two weeks to respond to the show cause notice.
- "All we are asking for is a level playing field," said Rajagopal Menon, Vice President of prominent Indian crypto exchange WazirX.
The Indian government's decision to block URLs of nine offshore exchanges and issue them show cause notices on Thursday came after an official request asking for the same from the Indian crypto and Web3 association's advocacy body, a letter viewed by CoinDesk shows.
The letter dated Dec. 16 was written by the Bharat Web3 Association's (BWA) Chairman, Dilip Chenoy, and was addressed to the Indian Finance Ministry's Department of Revenue Secretary Sanjay Malhotra.
The offshore exchanges have been given two weeks to respond to the show cause notice, which asks why actions against them shouldn't be taken, according to a source who spoke on condition of anonymity given the person wasn't authorized to speak on the matter. However, the letter from the BWA sought a one-month grace period for offshore exchanges to register with India's Financial Intelligence Unit (FIU), which falls under the Finance Ministry.
It wasn't immediately clear whether the BWA letter was single-handedly responsible for the action or whether the government would have taken the action unilaterally as well.
In March, India’s Finance Ministry mandated that crypto businesses will have to register with the FIU, the country's anti-money laundering unit, and comply with other processes under its Prevention of Money Laundering Act (PMLA). As many as 31 domestic entities have registered themselves with the FIU since.
Binance, KuCoin, Huobi, Kraken, Gate.io, Bittrex, Bitstamp, MEXC Global and Bitfinex are the nine exchanges. None of the entities responded to CoinDesk's requests for comment during the end-of-the-year holiday season.
The BWA didn't immediately respond to a CoinDesk request for comment.
The action by local crypto-related entities against foreign exchanges is rare if not entirely unprecedented in so far as local exchanges haven't asked the government to take action against offshore exchanges. The move comes after Indian crypto exchanges have been in survival mode, trying to extend their runways, ever since the nation imposed stifling taxes on the industry – a 30% tax on crypto profits and a 1% tax deducted at source (TDS) on all transactions.
A think tank has detailed how the TDS prompted as many as 5 million Indian crypto traders to move their transactions offshore and estimated that it cost the government a potential $420 million in revenue since it was introduced in July 2022. The study also revealed that Indians moved more than $3.8 billion in trading volume from local to international crypto exchanges after the controversial crypto rules were announced.
The letter from the BWA also asked for the government to ask the offshore exchanges to establish an Indian subsidiary or entity, to mandate depositing of the applicable TDS effective from when it was imposed on July 1, 2022, and in case of non-compliance, restrict access to these platforms on mobile app stores and block their IP addresses.
It isn't clear whether all of these requests from the BWA feature in the show cause notices.
Crucially, the letter asked the government to give Indian retailers 30 days to withdraw their assets before implementing any restrictions.
"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."
Sumit Gupta, the co-founder and CEO of CoinDCX, another leading crypto exchange said Indian exchanges, led by BWA, have consistently advocated for a level playing field, particularly in the context of investors migrating to offshore platforms, which are not obligated to implement taxation and 1% TDS.
"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.
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