The President of Kazakhstan signed a bill to apply a differentiated tax rate based on the energy consumption of crypto miners on July 11.
The new bill altered the country’s law on Taxes and Other Mandatory Payments to the Budget. The tax rates start at 1 Khazakstani tenge per kilowatt-hours at the lowest (approximately $0.002) and increases based on the amount of electricity consumed for mining during a certain taxation period.
Even mining farms that use renewable energy sources can’t dodge the new tax law, and despite having the lowest tax rate, they will still pay 1 tenge per kilowatt-hours.
Mining giant Kazakhstan
Kazakhstan’s cool climate and rich coal mines made it a good fit for mining activities. In August 2021, Kazakhstan provided 18.1% of the global hashrate, making it the second country with the highest mining activity.
Most businesses set up mining farms in the region. Moreover, the country also took advantage of China’s ban on mining. Companies that fled China due to the prohibition set up shop in Kazakhstan and significantly increased mining activities.
Changing attitude towards mining
While things were swimmingly for the region’s miners, an energy crisis resulted in electricity prices surging in November 2021. Even though the country considered all options to keep the miners within its borders, it failed. Most miners fled the nation to set up their businesses in nearby countries, causing the national hashrate to drop significantly.
After the energy crisis, Kazakhstan had a change of heart and decided to be less accommodating to the miners. In January 2022, the county cut off miners’ power for a month so it could make it through amid the energy crisis. Next month, lawmakers of the nation proposed new legislation to discourage miners in the region. The new proposal suggested taxing crypto mining equipment to be taxed the same way as gambling machines.
In May 2022, the county tightened the rules for crypto miners, forcing them to report their energy consumption data at least 30 days before starting their operations.
Based on the Cambridge Bitcoin Electricity Consumption Index, Kazakhstan currently has the third-highest monthly hashrate.
Based on January 2022 data, Kazakhstan provided 13.22% of the global hashrate, following China (21.22%) and the U.S. (37.84%). With additional taxation and bureaucratic burdens, this rate could be lower for Kazakhstan in the future.