Are cryptocurrency miners obligated to pay tax?

Date: 26.05.2021

Experts actively discussed the tax issues of digital mining activities.According to the new bill which is under consideration in the Senate, the electricity charge for digital mining will be 1 tenge per kilowatt hour.

We decided to find out the position of the "Kazakhstan Association of Blockchain Technologies" from its chairman, Akhmetov Sapar Kairatovich.

Good afternoon, Sapar Kairatovich! We know you as a public figure who has extensive legislative experience in the Parliament. What do you think about new types of payments for miners?

Good day! Members of our Association and market participants support the proposal of the Government of the Republic of Kazakhstan, since this bill:

First of all, 100% will legalize all mining companies and get them out of the shadow, the exact number of which is still unknown today.

Secondly, it is a signal to international investors that Kazakhstan continues to develop the crypto industry. As you know, our country last year has already legalized digital mining, and in this year the adoption of this law creates a further impetus to the development of this industry. All international investors will comfortable work in our country, where the industry is legalized, and they pay tax, thus realizing that the state supports them.

The adoption of these amendments makes our country more progressive in the development of new technologies and will allow Kazakhstan to consolidate its position in the TOP-5 countries of leaders in the world in blockchain technology. And of course, the members of our Association and, I hope, the public also support this initiative of the Government and the Mazhilis of Parliament, realizing that an additional tax on digital currency mining will replenish the country's budget at a difficult time for us caused by the coronavirus pandemic.

As far as we know, today the price of electricity is rising. So, tell us please, will the implementation of a new payment become an additional burden for miners?

I would like to point that the proposed calculation of taxation was the subject of discussion at the platforms of the Government, the Presidential Administration, as well as the Mazhilis of Parliament with the participation of business and public organizations, and received comprehensive support, including from our Association, which represents the interests of digital mining enterprises.

The planned tax will not become a burden for digital mining entities, since:

Kazakhstan is one of the few countries with cheap electricity, and the planned tax of 1 tenge per 1 kWh will not affect the economy of digital mining companies

The demand for electricity from miners, as well as its rise in price by 1 tenge per 1 kWh,ill stimulate an increase in electricity production by generating companies, including promoting the development of renewable energy.

There is an opinion in the expert community about reducing Kazakhstan's investment attractiveness for representatives of this industry. What do you think about that?

A number of members of our Association work closely with international companies in the crypto industry, and are also members of international blockchain associations. According to them, the adoption of the bill on taxation of digital mining will favorably affect the investment attractiveness of our country for international crypto investors. As investors understand that the Government of Kazakhstan, receiving this tax in the budget, will support conscientious taxpayers. At the same time, the public and market participants realize that from this tax the state will pay salaries to teachers, doctors and all budgetary organizations. And we do not understand the position of those who do not think about the interests of the state, prioritizing only personal commercial interests. I think this is even unpatriotic.

The statements of some market participants about the possible emigration of mining companies to Uzbekistan and other countries are incorrect. As for Uzbekistan, this country is energy deficient, and they themselves, at the level of the Government, trying to raise the price of electricity for miners. Many international investors, despite attractive electricity prices, are unable to work in the Russian Federation, due to sanctions. In terms of China, the local government is more strict about the regulation of the crypto industry, thereby creating conditions for the outflow of investments from China to other countries. I'm not even talking about developed countries with expensive electricity, in which mining is not economically feasible.

All of the above confirms that Kazakhstan is a more attractive country for the crypto industry than our neighbors and other more developed states. Soon, together with you, we will witness an influx of new investments into our country, as well as hear in Kazakhstan the names of international companies that are leaders in the crypto industry.

How do you comment on concerns about the possible increase of this payment from 5 to 10 tenge in the coming years?

We believe that the Government of the Republic of Kazakhstan made the right decision by approving a tax of 1 tenge per 1 kWh. As I said earlier, this is the minimum rate that is comfortable for domestic miners and international investors in the long term. I think this tax will be in effect for at least the next five years.

In the future, if the price of bitcoin rises and there will be much more international investors wishing to come to Kazakhstan than the surplus of electricity in our country, then I do not exclude the possibility that our Government will have to raise the tax to 2 tenge. All this will depend on the market situation.

What can you say about the fact that some entrepreneurs and associations remained outside the discussion of these legislative norms?

From my experience of working in the Parliament, I know firsthand that a norm involving a reduction or replenishment of the budget is always discussed by the Government with absolutely all stakeholders and market participants. Therefore, the statement that someone was supposedly left out of the discussion does not correspond to reality. But at the same time, there may always be people who will be dissatisfied with certain bills that affect their commercial interests.

The National Association of Blockchain and Data Center Industry "believes that while causing additional burden on enterprises the state will get only 4.4 billion tenge. Given the insignificant budget revenues, how advisable is it to introduce such a measure?

There's a bit of a contradiction in what our colleagues said. They made the argument that the proposed tax payments constituted an obstacle to the development of the business. At the same time, they think the fees are trivial.

The recognition that this amount is small confirms the thoughtfulness of the legislative norm proposed by the Government.

Summarizing our interview, can you name all the advantages of this industry for our country?

As you know, Kazakhstan legalized digital mining in June last year and in this very short period we have already become the fourth country in the world. This shows that the blockchain industry is developing very dynamically every month and year, budget revenues from digital mining will grow exponentially. By legalizing digital mining, Kazakhstan, in fact, legalized a whole new industry that we did not have before.

The blockchain technologies and the crypto industry include the following areas: service centers for the maintenance and repair of computing equipment, the creation of crypto exchanges, OTC platforms and mining pools in our country, services for the storage of digital assets, services for providing loans secured by digital assets , tokenization of industrial assets to offer investors new investment products.

The development of these areas of the blockchain industry will allow us:

First, to attract tens to hundreds of billions of dollars of foreign investment to our country in the next 5-10 years, which will give impetus to the development of the national economy in the field of new technologies and will enable our country to get away from commodity dependence.

Second, create tens of thousands of new jobs. Most of these specialists will master new specialties using these technologies and will be in great demand both in Kazakhstan and in the global world.

Thirdly, to attract new technologies, as well as to open enterprises for the production of computing equipment, which can be used not only in digital mining, but also in the field of artificial intelligence (AI), the Internet of Things (IoT) and storage of big data (Big Data).

Taking this opportunity, on behalf of the Association and market participants, I would like to thank the Head of State and the Government of the Republic of Kazakhstan for adopting timely and progressive laws and for supporting the development of blockchain technologies and the crypto industry in our country. In the next 10-15 years, this technology will change the entire world financial infrastructure and will be one of the locomotives of the development of the global economy. We are proud that our country is at the forefront in the development of digital technologies in the international arena.