Kazakhstan plans to increase electricity prices and quadruple taxes for miners, no longer friendly to mining companies?

Kazakhstan may not be as crypto mining-friendly as expected? Recently, Kazakhstan proposed to increase electricity prices and taxes for crypto miners, aiming to provide more funding for the country's crypto industry through taxation. However, this may have the unintended consequence of reducing the attractiveness of mining enterprises.

The first deputy minister of the Kazakhstan Ministry of Finance, Marat Sultangaziyev, proposed to increase the electricity price for cryptocurrency miners from $0.0023 per kilowatt-hour to $0.01, a rise of about 335%. Additionally, he suggested imposing a tax on each individual graphics processing unit (GPU) and equipment required for cryptocurrency mining.

Marat Sultangaziyev likened GPUs to tables in a casino, suggesting that each table in a casino is taxed regardless of whether it is in use. He also proposed eliminating the value-added tax (VAT) exemption for mining hardware.

In January of this year, Kazakhstan experienced riots due to the removal of oil price subsidies, causing miners to temporarily lose internet connection. This situation led Kazakhstan to become the preferred destination for Chinese mining companies to withdraw, attracted by cheap electricity prices and proximity to China. For example, BIT Mining relocated from China to Kazakhstan in July last year. Initially, BIT Mining claimed that it would not be affected by political unrest in Kazakhstan, but if the proposal to increase electricity costs and taxes is implemented, mining companies will have to reconsider their operations.

Kazakhstan is the second-largest producer of Bitcoin hash rate in the world, following the United States, accounting for approximately 18% of the global hash rate as of August 2021. On January 5th, due to power outages in Kazakhstan, Bitcoin's hash rate plummeted from around 205 exahashes per second (EH/s) to 177 EH/s, a sharp decline of 13.4% within a day.

If the tax proposal is implemented, it will weaken Kazakhstan's competitive advantage in the mining industry. Kazakhstan had originally planned to grow the cryptocurrency mining economy to $1.5 billion within the next 5 years, but this blueprint may now face changes.

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