Kazakhstan Wants to Pass a New Bill on Taxes: What It will Change for the Chinese Crypto Miners
After the intense tightening of the rules related to the cryptocurrency industry in China, local miners began to look for other countries. Their interest was attracted by Kazakhstan.
As you know, in May, three associations under the People’s Bank of China (PBC) issued a note prohibiting companies from supporting crypto-related businesses. They also recommended that Chinese residents should avoid investing in cryptocurrencies and reminded that such operations are not protected by law.
Later, Vice Premier of the State Council of the People’s Republic of China Liu He announced the need to fight mining. And local media supported the rhetorics of the authorities, criticizing Bitcoin and its mining.
Analysts almost immediately stated that such conditions would force miners to migrate from China.
According to Reuters, the BTC.TOP mining pool and HashCow have already suspended operations in China.
According to Vice President of Poolin Alejandro De La Torre, many miners are going to relocate to other countries. Among the most popular destinations are North America and Central Asia. Namely – Kazakhstan.
And the representative of Slush Pool Edward Evenson noted that miners intend to move equipment for mining cryptocurrencies of 300-400 MW to the countries of North America, some countries of the European Union and Kazakhstan.
The Chinese company BIT Mining Limited, after the decisions of the PRC government, announced an investment of $ 9 million in a mining center in Kazakhstan.
The local Association of the Blockchain and Data Center Industry also announced the increased interest of Chinese companies involved in the extraction of cryptocurrencies in the development of the industry in Kazakhstan.
However, according to representatives of the Association, a new obstacle may arise. The Kazakh authorities are considering a bill that provides for the introduction of additional electricity charges for miners.
New rules for miners
On May 17, 2021, a group of deputies initiated a draft law on amendments to the Tax Code of Kazakhstan. It has already been approved in the Mazhilis (lower house of parliament) and submitted to the Senate for consideration.
There are many amendments in the bill, but one of the sections provides for the introduction of an additional fee of 1 tenge per 1 kWh of electricity consumed in the production of cryptocurrencies. If the document is adopted, the new rules will enter into force on January 1, 2022.
The authors of the amendments expect that the introduction of the new tax will increase budget revenues and, along the way, help regulate and control energy consumption by miners.
According to Albert Rau, one of the initiators of the bill, the main goal of the document is to bring mining out of the shadows. And the fee of 1 tenge is a symbolic price that will help you understand how the industry looks in Kazakhstan.
Tax authorities from the Ministry of Digital Development, Innovation and Aerospace Industry of Kazakhstan will receive a list of miners. But there is still no complete and reliable data on the number of entrepreneurs employed in mining in the public domain.
Many experts are afraid that the introduction of additional fees will not only reduce the economic attractiveness of Kazakhstan, but also create a negative precedent for foreign investors.
Association President Alan Dordzhiev said that the matter is not so much in the industry as in creating a negative precedent for investors.
Moreover, the adoption of the bill may prevent an increase in investment in the cryptocurrency mining industry to 500 billion tenge by 2025. Namely, this is the goal set by the President of Kazakhstan, Kassym-Zhomart Tokayev.
According to the Minister of Digital Development, Innovation and Aerospace Industry of Kazakhstan Bagdat Musin, as of mid-May 2021, there are 17 mining farms in the country.
According to the Association, the mining sector consumes about 4.38 billion kWh per year at an average electricity price of 13 tenge including VAT. Companies spend another 10-15 billion tenge on salaries, construction and the purchase of local products, such as cables.
The Association calculated that if the bill is adopted, miners will pay about 4.4 billion tenge to the budget for the year. Electricity tariffs have been increased several times since 2018. And if they continue increasing, some investors may leave Kazakhstan. Because of this, the country will instantly lose about 10 billion tenge of investments per year.
The head of “BTC KZ” Galym Teleuov expressed concerns about the withdrawal of companies in the field of cryptocurrency mining from the Kazakhstan market. He recalled that many investors left the cryptocurrency industry in Kyrgyzstan after the rumors of an increase in mining taxes.
Thus, according to experts, the additional fee can slow down the migration of miners from other countries, in particular from China.