The Kazakh government is considering a proposal that could significantly impact crypto miners operating in the country, potentially making Kazakhstan a less appealing location for the industry.
First Vice Minister of Finance, Marat Sultangaziyev, presented a three-part plan on Feb. 4 to increase costs for crypto miners. The proposal includes raising the price of electricity for miners from $0.0023 per Kwh to $0.01 (a 335% increase). Additionally, Sultangaziyev suggested imposing a tax on each graphics card (GPU) and mining equipment used by crypto miners, drawing a parallel to how casinos are taxed on each operational table.
The third aspect of the proposal is to eliminate the exemption on value-added tax (VAT) for mining hardware.
Mining Bitcoin involves using specialized hardware to perform calculations necessary for creating new blockchain blocks. Large mining operations can consist of over 10,000 mining rigs, including ASICs, GPUs, cooling systems, and related infrastructure.
Kazakhstan has emerged as a popular destination for crypto miners, particularly after China banned mining last year. However, a disruption in internet access due to political turmoil led to a sudden drop in Bitcoin’s network hash rate, prompting concerns among miners based in the country.
BIT Mining, a major Bitcoin mining firm that shifted from China to Kazakhstan last year, noted that the recent developments would not compel them to relocate their operations. Nonetheless, the proposed power price hikes and taxes could potentially alter their stance.
The allure of inexpensive electricity and proximity to China has attracted miners looking to escape regulatory pressures in China. As of August 2021, Kazakhstan ranked as the second-largest producer of hash power for Bitcoin after the United States. However, if the stringent tax measures are implemented, it might discourage both new and existing miners from operating in the country.
It’s worth mentioning that Kazakhstan has been grappling with electricity supply challenges, exacerbated by the influx of crypto miners from China. The country witnessed an 8% rise in domestic electricity consumption in 2021, prompting discussions about constructing a nuclear power plant to alleviate strain on the grid and maintain affordable energy costs.
Related: Focus on Asia: Implications for Crypto post-China
Access to low-cost electricity is a crucial factor driving miners’ decisions. Cointelegraph highlighted on Jan. 27 that the United States, unable to offer the cheapest electricity rates, might struggle to retain its position as a mining leader. If Kazakhstan loses its competitive advantage in electricity costs, it could jeopardize its ambition to generate $1.5 billion from miners over the next five years.
