May 29, 2024
Crypto Mining Tax Contributions on the Rise in Kyrgyzstan
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Crypto Mining Tax Contributions on the Rise in Kyrgyzstan

In a fiscal year marked by fluctuating fortunes, the government of Kyrgyzstan has reported collecting 78.6 million soms, approximately $883,000, in taxes from cryptocurrency miners during the first 11 months of 2023. The Finance Ministry revealed this figure, highlighting the growing impact of the crypto-mining industry on the Central Asian nation’s economy.

The tax revenue from crypto mining in Kyrgyzstan exhibited volatility throughout 2023, ranging from 738,000 soms ($8,284) in February to a peak of 11.6 million soms ($130,212) in August. November, the last reported month, saw receipts plateau at 7.6 million soms ($85,767) after a decline from the August high. Notably, there is now only one officially operating cryptocurrency mining company in Kyrgyzstan, reflecting a significant reduction from previous numbers.

Comparing the data to the same period in 2022, when tax revenue amounted to 11.1 million soms ($133,200), the growth in the crypto mining sector is evident. The tax rate imposed on crypto miners stands at 10% of the electricity cost, including value-added and sales taxes.

With abundant water resources, Kyrgyzstan, particularly in glaciers, high-altitude lakes, and rivers spanning over 35,000 km, provides a unique environment for crypto mining. The industry relies heavily on hydropower, capitalizing on the nation’s natural assets.

President Sadyr Japarov endorsed the construction of a crypto-mining facility at the Kambar-Ata-2 Hydro Power Plant in July 2023. Notably, crypto miners in Kyrgyzstan face a rate five times higher than that charged to the general public.

Despite the promise of abundant hydropower, challenges emerged in 2023. Low fill levels at dams and delivery limitations due to contracts with neighbouring countries hampered energy production. Crypto miners had to resort to importing power, a situation exacerbated by difficulties in sourcing imported power. By October 2023, the crypto mining industry had already consumed 17 million KWh of electricity.

The energy consumption by crypto miners has long been a contentious issue, with the legality of cryptocurrency exchanges existing alongside unregulated cryptocurrency circulation in Kyrgyzstan. The industry faces a delicate balance as it navigates the evolving energy landscape, contractual limitations, and the broader regulatory framework.

As Kyrgyzstan continues to grapple with the challenges and opportunities presented by the crypto mining industry, the government’s tax collection figures underscore the sector’s growing economic significance in the country, offering a glimpse into the complexities of balancing energy needs and regulatory oversight in the evolving world of cryptocurrencies.

Image: Wikimedia Commons

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