Kyrgyzstan to introduce new taxes for crypto mining operations

Kyrgyzstan’s parliament is looking at implementing a tax regime for miners; if approved, this would be the country’s first regulated framework for crypto activities

Osh city, Kyrgyzstan
Aerial view of the city of Osh, where a company was found to be illegally mining cryptocurrencies.

Regulators in the Kyrgyz Republic are looking at introducing a bill to tax and regulate crypto mining activities.

The bill, entitled “On Amending The Tax Code of the Kyrgyz Republic”, looks at increasing government revenue by establishing taxation obligations for miners. The bill also establishes clear definitions for the terms “virtual assets” and “mining” in the context of cryptocurrencies.

If this bill is passed, it would be a significant first step taken towards the recognition and acceptance of cryptocurrency on the part of the Kyrgyz Republic. Prior to these developments, the country had explicitly banned crypto assets from being used as a means of payment in July 2014.

Despite this ban, the country is home to over 80,000 technical devices that allow for cryptocurrency mining.

The law proposes a flat tax rate of 15% for crypto miners on all profits generated through the sale of mined crypto assets.

This bill was first proposed in August 2019, and experts believe that this bill could provide an additional $4.2 million toward the country’s approximately $1 billion annual budget.

Local news outlet Kabar confirms that this draft law was developed specifically to pave the way for taxing crypto mining. According to the article, the bill proposes to tackle three main points: to supplement section XV, entitled “Special Tax Regimes of the Tax Code of the Kyrgyz Republic With Chapter 60”; to determine the meaning of the terms “cryptocurrency, “cryptocurrency mining”, and “hashing”; and to determining the tax base of the tax on cryptocurrency mining in the form of expenses of the taxpayer for the payment of electricity consumed during crypto mining, which includes VAT and sales tax.

The parliament also considered the introduction of a designated electricity rate for miners. This follows a suggestion from the Supreme Council that they pay $0.05 per kilowatt-hour (KW/h) in December 2019; a 70% premium, in comparison to the country’s average price of $0.030 per KW/h.

Deliberations are still ongoing and several lawmakers have expressed concerns of their own regarding the mining activities. Deputy Aaly Karashev pointed out the impact of large-scale crypto-mining activities on the country’s limited electricity generation capabilities; currently, Kyrgyzstan is importing nearly twice as much power as it exports.

Deputy Natalia Nikitenko seconded these apprehensions surrounding energy consumption, but also highlighted the persistence of illegal mining operations even with the Kyrgyz Republic issuing a temporary suspension on the activity last September 2019.

Last September, the government of Kyrgyzstan ceased supplying electricity to 45 mining firms. They claimed that these companies’ total consumption of 136 megawatts went beyond that of the local regions of Talas, Naryn, and Issyk-kul combined.

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