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Rs 8,000 crore: What it cost PhonePe to shift domicile to India from Singapore

Rs 8,000 crore: What it cost PhonePe to shift domicile to India from Singapore

Rs 8,000 crore: What it cost PhonePe to shift domicile to India from Singapore
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By Akhil V  Jan 25, 2023 6:32:40 PM IST (Published)

Speaking at a Youtube Live chat with PhonePe's co-founder and CTO Rahul Chari, Nigam claimed that if regulations are eased, at least 20 unicorns could look at shifting their domicile to India.

PhonePe's investors had to suffer an Rs 8,000 crore hit in taxes after the company decided to shift its domicile from Singapore to India. "That's a stiff shock," said Sameer Nigam, co-founder and CEO, PhonePe.

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"If you want to move from any other market to India as a domicile, it's treated like a capital gains event for existing investors. So, you have to do a fresh mark-to-market valuation. You have to pay tax on the delta," he said, explaining the obstacles faced from a regulatory standpoint in moving back to India.
Speaking at a Youtube Live chat with PhonePe's co-founder and CTO Rahul Chari, Nigam claimed that if regulations are eased, at least 20 unicorns could look at shifting their domicile to India. "They are reaching out asking, 'How do we get this changed?'"
Nigam stated two additional obstacles that PhonePe faced while returning to India. "We had to convince several thousand employees that you are back to a zero ESOP vesting with a one-year cliff," he said.
"It's particularly hard for early-stage startups. I think that the law needs to change because it's not progressive. It's disincentivising startups from moving their domicile to India," he added.  
Citing another challenge for pre-profit startups shifting base to India, Nigam said, "You are accumulating losses. Later, as the company becomes profitable, you can actually offset the losses, which saves you some tax. In this case, by domiciling to India, as things stand and unless the law changes, we stand to lose about $900 million of accumulated losses as it is considered a restructuring event."
"Essentially, there is no distinction in Indian Law between a restructuring where the pre and post-beneficial owners are the same and another acquisition event. That's at the heart of the challenge," he added.
Despite regulatory challenges, why did PhonePe shift its domicile to India?
"For the mission, we are on, we want to solve for at-scale financial inclusion, digitisation and ecosystem building in the country. India is where we started. India is where we are focussed. And, we will be for the next couple of decades. To that end, for various reasons, including being highly regulated, wanted to list here, creating ecosystem and shareholder value here," said Nigam. 
"A lot of entrepreneurs are now finally realising that the Indian market, where their brand has a relationship with the customers and the local ecosystem, will reward you better. You should be able to get better investment interest and more capital, if you are a well-known Indian brand operating in the local market," he added. 
"I am hopeful that over the next four to five years, we'll see more and more Indian startups listing on the Indian bourses."
When does PhonePe plan to go for an IPO?
Nigam said, "We had told our board and the media, we'll list in 2023. But, we had said that five years ago. A lot has changed over the last five years. The payments business is doing really well. Our ambitions have grown. The opportunity to do things across e-commerce, ONDC, account aggregator, insurance, lending and so many other sectors have opened up. The Indian market has really opened up on the digital front," said Nigam.
"Learning from the 2021 IPOs, I think it'll take a while before the Indian market appreciates the pre-profit listings. That too at significant valuations. Profitability at scale would be the two markers. Third would be the diversification of the business. I think it'll take us a few years," he added.
Between the news of the domiciling to India and the recent $350 million fundraising from General Atlantic, which valued PhonePe at $12 billion, the company had also announced its separation from Flipkart to operate independently.
Nigam explains, "It became clear that Flipkart and PhonePe were and made sense for shareholders. It gives us the opportunity to get other investors, who have their investment strategies more aligned with fintech and payments, whereas Flipkart can attract investors who are coming in for e-commerce. We had reached a certain level of maturity and this gives us an independent path or trajectory for our own listing and roadmap not having to worry about Flipkart."
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