Kazakhstan’s New Law Assigns Utilization Of Excess Energy Only For Crypto Mining

Kazakhstan is one of those states where electricity consumption charges are relatively much lower than in the rest of the world.

It may be beneficial for people living there and the country may be proud of it, yet it also has negative sides.

Kazakhstan underestimated the consequences when miners were flocking into the country from all over the world. Currently, Kazakhstan is suffering from an uncontrollable electricity shortfall crisis mainly because of miners.

Crypto Law Reforms

Recently, a total of bills pertaining to crypto had been presented before the country’s lower house namely Mazhilis for consideration. One of them is the “Digital Assets of the Republic of Kazakhstan”.

According to local media reports in Kazakhstan, the draft bills have been duly adopted by Mazhilis.

Under the newly adopted crypto laws, miners can obtain power through the local electricity exchange KOREM from the national grid.

However, the national grid would be entitled to assign only surplus (in excess) power. In case there is no surplus then there shall no power for the miners.

The laws proposed an incentive for miners which is that there shall be no price restrictions against obtaining surplus energy.

Ekaterina Smyshlyaeva, a member of Mazhilis, explained that laws have laid down a mechanism through which crypto trading would be governed.

Mining Licenses Introduced

Under the newly adopted laws, the mining industry has been obligated to obtain mining licenses. The licenses have been further divided into two main categories.

Standards for mining entities have been laid down which include standards for equipment, machines, protocols, and locations. The first category of licenses would hence be obtained by data processing centers.

The second category of licensees is those who own mining equipment but lease the equipment/farms to third parties for mining operations.

Specific rules for mining pools have been put in place which shall be required to be complied with by mining pools. For instance, one of the requirements under the rules is that servers should remain in Kazakhstan and not outside.

Furthermore, additional regulatory compliance such as providing information also has been fixed upon miners.

China Migrated Miners

China was the leader of the crypto mining industry as it was once known for hosting the majority of the miners. However, the Chinese Government banned crypto mining in 2021 and consequently, miners had to migrate from China.

Since they couldn’t move the infrastructure because of costs, long distances, and damage, they aimed at re-shifting into neighboring countries.

Kazakhstan was then earmarked as the best possible location they could find in the region, particularly near China.

The country also offers a very suitable climate where crypto-mining operations can continue without facing any major issues.

Although it has a partial climate the extreme colds can prove to be very profitable for mining firms.

Cheaper electricity consumption rates were also one of the causes of miners’ attraction to Kazakhstan.

However, excessive mining activities have caused a power shortage in Kazakhstan where more electricity is consumed during winter.

Crypto Tax Levy

It may be noted that the draft bills also contained proposals for crypto tax levies upon miners. It was proposed that tax should be imposed upon miners and collected under the head’s corporate income tax’.

Similarly, commissions from mining pools shall be subject to corporate income tax.

On the other hand, Value Added Tax (VAT) shall be levied and collected at the individual level. The law suggests that any person carrying out a transaction involving digital currency shall be entitled to pay VAT.

However, the rate at which VAT shall be charged and collected has not been determined yet.

Similarly, crypto trading and custodial platforms would also be paying the same tax at a certain percentage.

For now, Kazakhstan is focused on the implementation of cryptocurrencies in the country. Once the first step has been taken, the country will start thinking about implementing a fixed levy on crypto.

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