Kyrgyzstan, a nation with abundant untapped hydroelectric resources, has experienced a notable surge in tax revenue from crypto mining activities throughout 2023.
As reported by the Finance Ministry and local press on January 1, the Kyrgyzstan government collected 78.6 million soms (around $883,000) in taxes from cryptocurrency miners within the first 11 months of 2023. This figure represents a substantial increase from the 11.1 million soms ($133,200) recorded during the same period in the previous year.
The tax revenue from crypto mining in Kyrgyzstan witnessed fluctuations throughout 2023. Monthly revenues varied significantly, hitting a low of 738,000 soms ($8,284) in February, peaking at 11.6 million soms ($130,212) in August, and settling at 7.6 million soms ($85,767) in November.
Currently, Kyrgyzstan hosts a single officially operating cryptocurrency mining company, a notable contrast to a previous landscape with multiple active firms. The government imposes a 10% tax on the electricity cost used for mining, inclusive of value-added and sales taxes.
The nation’s abundant natural resources, particularly its extensive water resources encompassing glaciers, lakes, and rivers spanning over 35,000 km, play a pivotal role in supporting the mining industry. Despite being underdeveloped, these resources enable a reliance on hydropower for crypto mining activities.
Kyrgyz President Sadyr Japarov authorized the establishment of a cryptocurrency mining facility at the Kambar-Ata-2 Hydro Power Plant in July 2023. Miners are subjected to a rate five times higher than regular consumers for electricity usage in Kyrgyzstan.
However, challenges such as lower water levels in dams and constraints in power importation due to agreements with neighboring nations posed hurdles in 2023. Despite these obstacles, the sector consumed 17 million KWh of electricity by early October.
Following China’s crackdown on the industry three years ago, Kyrgyzstan and neighboring Kazakhstan emerged as hubs for mining enterprises. However, this surge heightened power demands, leading to legal restrictions on miners’ electricity consumption.
Although Kyrgyzstan possesses immense energy production potential, utilizing only about 10% of its capacity for mining activities, the government has taken dynamic steps in regulating the cryptocurrency sector. This includes shutting down illegal mining operations, imposing higher electricity rates for miners, and implementing laws to establish a legal framework for virtual assets, encompassing taxation and registration requirements for mining businesses.
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