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Kyrgyzstan witnesses major boost in tax revenue from crypto mining

kyrgyzstan-witnesses-major-boost-in-tax-revenue-from-crypto-mining
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Kyrgyzstan witnesses major boost in tax revenue from crypto mining

Kyrgyzstan, a country possessing a wealth of untapped hydroelectric resources, has witnessed a sharp rise in tax revenues from crypto-mining activities in 2023.

Reports from the Finance Ministry, as covered by the local press on Jan. 1, reveal that the Kyrgyzstan government amassed 78.6 million soms (approximately $883,000) in taxes from cryptocurrency miners during the first 11 months of 2023.

The latest tax figure marks a substantial rise compared to the 11.1 million soms ($133,200) collected in the same period last year.

2023 witnessed a volatile trajectory in the tax revenue generated from crypto mining in Kyrgyzstan. The monthly revenues varied significantly, with the lowest being 738,000 soms ($8,284) in February, peaking at 11.6 million soms ($130,212) in August before settling at 7.6 million soms ($85,767) in November.

Currently, the country hosts only one officially operating cryptocurrency mining company, a stark contrast to the past when several firms were active in this sector. The Kyrgyz government levies a 10% tax on the cost of electricity used for mining, inclusive of value-added and sales taxes.

Kyrgyzstan’s rich natural resources, notably its water resources in the form of glaciers, lakes, and rivers totaling over 35,000 km, play a crucial role in supporting the mining industry. Though largely underdeveloped, these resources facilitate the reliance on hydropower for crypto mining activities.

In July 2023, Kyrgyz President Sadyr Japarov sanctioned the establishment of a cryptocurrency mining facility at the Kambar-Ata-2 Hydro Power Plant. Crypto miners are charged a rate five times higher than regular consumers in Kyrgyzstan.

The industry faced challenges in 2023, including lower water levels in dams and power importation constraints due to agreements with neighboring countries. Despite these obstacles, the sector managed to consume 17 million KWh of electricity by early October.

Following China’s crackdown on the industry three years ago, Kyrgyzstan, along with neighboring Kazakhstan, became a hub for mining enterprises. However, this surge led to increased power demands in the nation, prompting legal restrictions on miners’ electricity consumption.

Kyrgyzstan’s potential in energy production is immense, with the capability to generate up to 142 billion kilowatt-hours. Yet, only a fraction of this capacity, about 10%, is currently being utilized for mining activities.

The government’s approach to regulating the cryptocurrency sector has also been dynamic. It has shut down illegal mining operations, increased electricity rates for miners in late 2021, and enacted laws in 2022 to provide a legal framework for virtual assets.

The legislation includes a ban on crypto payments and introduces taxation on investment income and mining proceeds alongside a registration requirement for mining businesses.