Mining in Kazakhstan is gaining momentum. But how are things with the legal regulation there?

  • 15:49 Dec 15, 2022
  • 316
Mining in Kazakhstan is gaining momentum. But how are things with the legal regulation there?

Kazakhstan ranks third globally in terms of the amount of power (13.22%) spent on bitcoin mining. This is evidenced by the BTC Power Consumption Index, provided by experts at the Cambridge Centre for Alternative Finance.

This is influenced by the functioning of the legal regulation of mining, the relocation of Chinese miners of virtual coins, and the emigration of Russian citizens with their equipment designed to produce crypto and other factors.

Now Kazakhstan occupies a leading position not only in the context of bitcoin mining, but also other crypto. The mining facilities that are located in this country are only growing. And large companies – for example, Canaan – are opening their data centers there. 

Let's look at the legal regulation of mining in Kazakhstan and try to understand whether political developments in the country itself (and beyond) affect virtual coin mining in this Central Asian state. 

The law on the common energy system

It has been announced that people who mine in Kazakhstan are obliged to pay for electricity based on the provisions of a new law

The lower house of Kazakhstan's parliament passed a law «On Digital Assets of the Republic of Kazakhstan». The project has already been sent to the Senate.  The changes will affect the Tax and Administrative Codes.

Politicians hope that it will help to ease the life of people who are engaged in mining virtual coins. According to deputy Ekaterina Smyshlyaeva, these rules will help to fill the gaps in the existing legal aspects governing the mining of virtual coins.

According to Ekaterina Smyshlyaeva, all challenges and trends will be taken into account. The deputy emphasized that safety of Kazakhstan's financial system is the main priority in this issue. For this purpose, the actual regulatory tools are involved. 

According to the portal, there will be two main groups of people licensing the process of mining virtual coins. The first includes people who engage in mining and own specialized infrastructure. For example, data centers (DPCs). For them, the requirements will be relevant, which relate to the placement of equipment, its security and so on.

The second group is those who do not claim the energy quota. These people rent devices in data centers. And they will be subject to other regulatory tools. For example, taxation.

Smyshlyaeva recalled that, in addition to mandatory accreditation, which has been in force in Kazakhstan and up to this point, requirements are introduced regarding the location of the mining devices and their impact on the environment, the welfare of the region.

The taxation system will be holistic and transparent. It will include a number of items.

  1. Corporate income tax for the person who mines virtual coins. The value of the crypto at the time of obtaining it will be taken into account.
  2. The tax that will be levied on the mining pool. The deduction will be made from the funds the company receives in the form of remuneration for its services. 
  3. Tax for individuals, which will depend on the incremental value of the virtual coin. This applies to crypto transactions.
  4. CIT – corporate income tax. Will be levied on crypto exchanges. In Kazakhstan, they are considered business entities. This is an important change. As crypto-exchanges finally fall out of the register of preferential taxation. 

Important point for people who are engaged in individual mining

People mining virtual coins will be required to buy electricity from the general power grid. This will become possible if there is a surplus in the system.  This financial transaction is available only through the Kazakh electricity and power market operator.

The deputies note that the bidding will be based on adequate market mechanisms. Officials believe that this element of regulation should help the process of virtual coin mining in Kazakhstan.

By the way, the Russian Federation and Kazakhstan have agreed on legislative aspects to allow the power company «Inter RAO» to sell electricity to mining companies from this Central Asian country.

Detailed reporting requirements

In May this year, Kazakhstan's Ministry of Digital Development, Innovation and Aerospace Industry updated the requirements for people who mine virtual coins. This applies to both individuals and legal entities. The Ministry stressed that the control in this direction will be even more significant. 

The main message of the innovation is that those who engage in mining must provide detailed reports on their actions.

It is necessary to:

  • Provide the authorities with contact information about organizations that engage in mining in a timely manner;
  • issue a registration number;
  • provide bank details and all information related to the mining farms (location, number of devices used);
  • the amount of hashrate produced by the farm;
  • availability of customs declarations and other documents to confirm the right of ownership, which relates to the mining equipment.

Speech of the President of Kazakhstan on virtual coin mining

On November 19, 2022 the President of Kazakhstan spoke about the need to strengthen control over cryptocurrency. Kassym-Zhomart Tokayev believes that the country is in the top 3 countries mining crypto, but it does not have a positive impact on the financial well-being of Kazakhstan.

Vice-Minister of Energy of Kazakhstan Murat Zhurebekov also expressed his dissatisfaction. He complained about the fact that «gray» miners create a shortage of electricity in the country.

Impact of foreign and domestic geopolitical events on mining in Kazakhstan

In some states, politicians are calling for the creation of conditions for relocation of citizens from Kazakhstan who are engaged in mining. For example, Spanish MP Maria Muñoz in January this year wrote a letter to the government, which, in her opinion, should take active steps to absorb the business of crypto miners from Kazakhstan.

Since the outbreak of war in Ukraine, Russian citizens have fallen under sanctions. The people involved in crypto mining were also affected. Many of them decided to relocate to the closest and most designated country for mining – Kazakhstan. This has also affected the index of electricity consumption, which is spent on BTC.
Kazakhstan's contribution to cryptocurrency mining will continue to change. Depending on the domestic political environment and what is happening outside of this Central Asian state. The legal framework will also change. Stay tuned to for more news.

Share to:
Related news