Certified companies involved in cryptocurrency mining have called upon the Kazakhstan government to reassess its current tax regulations on the industry, which they describe as being in a critical condition. Industry insiders caution that major mining corporations are contemplating exiting the Central Asian country before the year concludes.
Companies Decry Disproportionate Tax Structure in Kazakhstan
Cryptocurrency mining enterprises, which are legally operating in Kazakhstan, have expressed discontent over escalating operational expenses. This comes after the government restricted their access to discounted electricity and introduced a graduated surcharge scale for electricity consumption.
In a formal communique to President Kassym-Jomart Tokayev, a consortium of eight businesses involved in digital currency creation urged a comprehensive review of the prevailing tax laws. They alerted the authorities to the precarious state of Kazakhstan’s mining sector, further disclosing:
At present, the most prominent players in the industry have temporarily halted operations and are contemplating a full cessation of business activities in Kazakhstan by year-end.
These firms underscore that they operate within the legal framework; their data centers are officially linked to the electricity grid and their computational hardware is properly registered. Additionally, a transparent methodology has been established for determining the basis of corporate taxation.
Although these companies have voluntarily collaborated with the government’s regulatory initiatives, they argue that such efforts are negated by what they term as an “inefficient and disproportionate” tax regime. This was reported by Kazakhstan’s Digital Business news outlet, which also cited the consortium’s statement:
Consequently, Kazakhstan has witnessed a sharp decline in its share of global digital mining, plummeting from 14.03% in 2022 to a mere 4% in 2023.
According to the mining companies, the variable electricity surcharge rate—which could rise up to 26 tenge (approximately $0.05) per kWh depending on the base price—essentially cripples the industry. They emphasized that electricity costs can constitute up to 80% of the value of the cryptocurrencies mined.
In the wake of China’s rigorous clampdown on cryptocurrency mining two years ago, Kazakhstan had emerged as a favored destination for crypto miners. However, the sudden influx led to increased electricity demand, putting pressure on the country’s power infrastructure. Faced with progressively stringent regulations and limitations on power availability, mining corporations began withdrawing from the country. For instance, China’s mining colossus Canaan declared in August that it had provisionally suspended about 2 exahash per second (EH/s) of its computing power in Kazakhstan since July.
Readers are invited to offer their perspectives on potential relocation destinations for crypto miners exiting Kazakhstan in the comment section below.
Frequently Asked Questions (FAQs) about Kazakhstan crypto mining taxation
What is the main issue that crypto mining firms in Kazakhstan are facing?
The primary concern for crypto mining firms in Kazakhstan is the country’s current tax structure and regulations. The government has restricted access to subsidized electricity and imposed a graduated scale for electricity surcharges, escalating the operational costs for these companies.
Who has communicated with the Kazakhstan government regarding these concerns?
A consortium of eight licensed cryptocurrency mining companies has formally communicated with President Kassym-Jomart Tokayev. They sent an open letter urging a comprehensive review of the existing tax laws affecting the crypto mining industry.
Kazakhstan’s global share in digital mining has significantly declined from 14.03% in 2022 to 4% in 2023. This sharp decrease is attributed to the unfavorable tax policies and operational costs that the crypto mining firms are encountering.
The cost of electricity can account for up to 80% of the total value of the cryptocurrencies mined. A variable electricity surcharge, which can rise to 26 tenge (approximately $0.05) per kWh depending on the base price, is cited as a major factor crippling the industry.
What were the crypto mining companies’ previous actions in relation to the government?
The crypto mining firms had voluntarily collaborated with the Kazakhstan government in its attempts to regulate the market. They have been operating under licenses, and their equipment and data centers are legally connected to the power grid.
Why did Kazakhstan become a hotspot for crypto mining?
Kazakhstan became a preferred destination for cryptocurrency mining in the aftermath of China’s crackdown on the industry two years ago. However, the surge in mining activities led to an increased demand for electricity, exacerbating the country’s power deficit.
Have any major mining companies already exited Kazakhstan?
Chinese mining giant Canaan announced in August that it had temporarily shut down approximately 2 exahash per second (EH/s) of its computing power in Kazakhstan since July, signaling the beginning of a potential industry-wide exit.
More about Kazakhstan crypto mining taxation
- Kazakhstan’s Current Tax Policies on Crypto Mining
- President Kassym-Jomart Tokayev’s Stance on Cryptocurrency
- Global Share of Digital Mining
- China’s Crackdown on Crypto Mining
- Canaan’s Temporary Shutdown in Kazakhstan
- Kazakhstan’s Power Deficit Issues
- Costs of Crypto Mining Operations
- Regulatory Initiatives on Crypto Mining in Kazakhstan