PhonePe’s investors had to cough up almost Rs 8,000 crore in taxes as the firm decided to domicile in India, said PhonePe’s cofounder and chief executive officer Sameer Nigam.
“I hope things will get easier. If you want to move from any other market to India as a domicile it is treated as a capital gains event for existing investors so they have to make a fresh mark to market valuation, you have to pay tax on the delta,” Nigam said during the firm’s first Youtube Live session on January 25 after it raised a huge round of $350 million last week.
The fundraise made the startup the most-valued fintech in India with a valuation of $12 billion.
In October 2022, Walmart-owned PhonePe announced that it has completed the process of moving its domicile from Singapore to India. ““The mission we are on is to solve for at-scale financial inclusion, digitization, ecosystem building in the country…India is where we started and India is where we will focus going ahead,” Nigam said.
However, the challenges for startups shifting domicile to India is high, he added.
“One thing that’s very common in startups in pre-profits. You are accumulating losses and later when companies become profitable you get to offset the losses to save some tax. By domiciling to India, we stand to lose about $900 million dollars of accumulated losses because this is treated as a restructuring event,” Nigam said.
Infact, Nigam also said that at least 20 exisiting unicorns want to shift domicile to India if regulations get easier.
“At least 20 existing unicorns want to come back to India and domicile here, they have reached out to us, if regulations get much easier,” he added.
PhonePe also had to convince several employees that the ESOP vesting plan goes back to zero.
“This is very hard for many startups, especially in the early stages of growth. This is like disincentivizing startups for coming back to India,” Nigam said.
Talking about the recent fundraise and PhonePe’s focus, Nigam said that the IPO will be decided only after achieving certain parameters. He did not share a definite timeline for IPO.
“We said that we will list sometime in 2023, but a lot has changed. However, a lot of things have changed. Opportunities have grown, ONDC, Account aggregators and so many new markets have opened up….Profitability at scale will be the main parameter and diversification of the business. It will take us a few years,” he said.
PhonePe’s $350 million fundraise follows the company’s spin-off from e-commerce startup Flipkart, which was announced in December. The Flipkart spin-off also completes PhonePe's transition to a fully Indian-domiciled company, which began in 2022.
“It became clear that Flipkart and PhonePe are on a very different paths and it made sense for shareholders. And it gives us the oppurtunity to get other investors in who are more into fintech and payments…This is the right time we reached certain level of maturity. It gives us our own path to listing and more,” Nigam said.
PhonePe had a revenue of Rs 1,646 crore in FY22 and it reported a loss of Rs 2,014 crore in FY22 (2021-22), which widened from Rs 1,729 crore in FY21 (2020-21).
