Kazakhstan government proposes power price hike and taxation on crypto mining

Kazakhstan government proposes power price hike and taxation on crypto mining

The government of Central Asian country Kazakhstan, is reportedly considering a three-pronged proposal designed for making crypto miners pay a higher fee to operate in the country.

Marat Sultangaziyev, the Kazakh First Vice Minister of Finance, on February 4, had proposed a price hike from $0.0023 per Kwh to $0.01 (roughly 335% increase) levied specifically on crypto miners. 

Sultangaziyev also made the proposal for the tax on each individual graphics card (GPU) and every single piece of equipment that is required in crypto mining activities. He has compared the tax-per-video card to the way casinos get taxed for each table they run, irrespective of the table being active or not.

Kazakhstan has so far been attracting crypto miners from all over, especially after the Chinese government crackdown on mining activities in the Mainland. The latest step could be moving back from its progressively attractive crypto industry.

The third part of the Minister’s proposal mentions removing mining hardware from an exemption on value-added tax (VAT).

Bitcoin Mining requires the usage of specific hardware for completing the mathematical calculations that are needed for creating new blocks on the blockchain. Larger mining operations housing more than 10,000 mining rigs also include ASICs (application-specific integrated circuits), racks, GPUs, cooling units, and attached facilities.

Prior to the recent political unrest in Kazakhstan, the country was booming with crypto miners, but the civil unrest had caused its government to restrict internet access last month and rethink taxation on crypto. 

Around January 5, the Bitcoin network’s hash rate had recorded a plummet of 13.4 per cent in a day from about 205 exahashes per second (EH/s) to 177 EH/s owing to the shutdown of Kazakhstan.

BIT Mining, a big Bitcoin mining operation that had originally moved from China to Kazakhstan in July 2021, had said to media in January 2022 that the political unrest would not force the firm it to move its operations elsewhere. However, the statement was made before the power, and tax increases had been proposed by the government.

Cheap electricity costs combined with proximity to China had attracted miners escaping Chinese authorities enter into Kazakhstan amid crackdowns in the country. This has led Kazakhstan to become the second-largest producer of hash power for Bitcoin, after the United States, producing about 18 per cent of the network’s hash rate, as found on August 2021 in a study by Cambridge University. 

With its recent taxation proposals coming into force, it may become less desirable for both new and existing crypto miners to call it their base of operations.

According to local news, Kazakhstan has been struggling with power supply issues since last year, which is around the same time when crypto miners had been rushing in from China. The country witnessed an 8 per cent increase in domestic electricity consumption through 2021, leading its government to consider construction of a nuclear power plant for easing the stress on its power grid and keeping energy costs low.

A report dated January 27 by the Cointelegraph had stated that the United States would not be able to provide the cheapest electricity and, therefore, it would be impossible for it to “hold on to the mining champion title for long.” 

While inexpensive electricity tends to be the biggest attraction for crypto miners, removing that advantage from Kazakhstan could mean a downward graph for the country’s ambitions of extracting $1.5 billion from crypto miners within the next 5 years.

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