In July of 2022 Kazakhstan introduced a new tax regime to govern cryptocurrency trade in order to combat the so called ‘wild west’ of cryptocurrency. The legislation is aimed predominantly at crypto mining operators and addresses the nation’s growing frustration with undertaxed and non-transparent use of the power grid for mining purposes. From next year, crypto miners will be taxed per kilowatt-hour of energy used to mine cryptocurrency, with rates depending on the type of energy used. Miners who rely on renewable energy sources will be taxed more favourably than those relying on traditional fossil fuel based sources.
Kazakhstan had previously been an appealing destination for crypto miners, especially after China’s crackdown on the industry. Kazakhstan presented the perfect destination for business relocation, with a stable political environment and cheap electricity. Kazakhstan had welcomed these miners, presenting them with direct subsidies and in so doing, reinforcing the appeal of Kazakhstan as an international mining hub.
So why has legislation been introduced? While being a regional crypto mining hub is undoubtedly something that Kazakhstan would want, there have been adverse consequences in allowing near unrestricted use of the power grid for crypto mining. Kazakhstan’s growing energy sector can no longer sufficiently support the wide-scale crypto mining industry, placing pressure on the government to reduce energy consumption of crypto mining centres. This has been coupled with environmental concerns caused by mass energy consumption of these centres, as the over-reliance on fossil fuels that power the crypto industry has contributed to extensive air-pollution in Kazakhstan.
The newly signed tax legislation is therefore a necessary next step in Kazakhstan’s crypto mining journey, one that aims to reduce the current burden on the energy industry and minimise the nation’s environmental footprint. Introducing greater taxes allows for more calculated and less overwhelming use of power, and incentivizes the use of energy that contributes to Kazakhstan’s environmental goals. It is predicted that the new tax regime will contribute over $1.5 million to the economy over the next five years.
Although the new legislation restricts and regulates crypto mining, it does not reduce the appeal of Kazakhstan as a crypto mining destination. The increased tax rates are still significantly lower than anywhere within the United States of America. The nation also remains the ‘clearest’ jurisdiction in the regime in terms of legal limitations to the use and mining of crypto assets. Kazakhstan is still a welcome destination for any company wishing to partake in crypto mining.
Author – Matt Davies
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