Kazakhstan Exempts Digital Asset Investment Gains from Taxes for Three Years

[Mexico City = Shim Young-jae, Correspondent] Kazakhstan will exempt individual investors from income tax on digital asset (virtual asset) trading gains for three years. The key is to encourage digital asset funds currently confined to overseas platforms and peer-to-peer (P2P) transactions to move to licensed domestic exchanges. A separate energy supply plan has also been established to address the burden on the power grid caused by the past Bitcoin mining boom.

According to Cryptopolitan, Kazakhstan's President Kassym-Jomart Tokayev signed a decree on the 11th (local time) that exempts individual investors from personal income tax on digital asset trading gains for three years. The Kazakh government aims to move approximately one million digital asset wallets, estimated to be held on overseas platforms, to licensed domestic exchanges.

Targeting One Million Digital Asset Wallets... Tax Exemption on Investment Gains for Three Years

Kazakhstan is launching a policy to attract digital asset trading outside of regulatory oversight into the domestic regulated market by emphasizing tax reductions.

According to Cryptopolitan, this decree was jointly prepared by Kazakhstan's Ministry of Digital Development, Innovation and Aerospace Industry, the Central Bank of Kazakhstan, and the Astana International Financial Centre (AIFC).

The core of the policy is to exempt individual investors from personal income tax on profits gained from digital asset trading for the next three years.

However, not all digital asset transactions will be exempt from taxes. Assets linked to fraud or money laundering, as well as transactions through unlicensed digital asset services, will be excluded from this measure.

Kazakhstan's Deputy Minister of Digital Development, Innovation and Aerospace Industry, Zhanat Baitursinov, stated that a simplified tax system to be applied after the three-year exemption period has already been prepared.

The government is also addressing tax issues related to past investment activities. According to Cryptopolitan, the Kazakh government is separately pursuing a plan to cancel tax audits targeting investors from the previous three years.

This suggests that the government aims to guide investors to the licensed domestic market not only with temporary tax benefits but also by reducing past tax uncertainties.

256,900 Users on Local Exchanges... Most Trade Outside Regulation

The background for Kazakhstan's bold tax exemption policy lies in the significant amount of digital assets held by its investors outside the regulated market.

According to Cryptopolitan, citing AIFC data, the number of digital asset wallets held by Kazakh citizens is estimated to be around one million.

In contrast, as of March, only 256,900 users were registered on licensed local exchanges.

This means that the number of digital asset wallets is about four times that of users on regulated domestic exchanges.

Cryptopolitan previously reported that approximately 95% of Kazakhstan's digital asset trading occurs outside the regulated market, with most transactions taking place through peer-to-peer trading or overseas platforms.

Regulatory authorities have also been cracking down on foreign operators.

According to Cryptopolitan, the Astana Financial Services Authority (AFSA) designated HTX, Bitget, OKX, and MEXC as unlicensed operators in April.

This three-year tax exemption measure can be seen as a policy aimed at reducing tax burdens while moving investors to licensed domestic platforms and expanding the regulated market itself.

Nurkhait Kushimov, head of Binance Kazakhstan, evaluated the tax exemption as the most important measure in this decree, explaining that tax benefits can enhance the competitiveness of licensed jurisdictions.

Bakhitjan Kenjebayev, president of the Kazakhstan Fintech, AI, and Digital Asset Industry Association, also assessed that this exemption removes significant uncertainties for investors.

However, warnings have been issued regarding the design of the system.

President Kenjebayev pointed out that if the legal definitions are too vague, the system could be abused, and there is a possibility that the policy could be reversed within one to two years.

Kazakhstan's Power Grid Shaken by Mining Boom... Energy Measures Included

This decree does not solely focus on activating digital asset trading. It also includes measures to address the power issues that had previously hindered Kazakhstan's first Bitcoin mining boom.

Kazakhstan became the world's second-largest Bitcoin mining hub after the U.S. following China's ban on Bitcoin mining in 2021, attracting large-scale mining operations. In 2022, it ranked third in the world in terms of hash rate.

However, the rapid growth of the mining industry placed a significant burden on the aging national power grid.

According to Cryptopolitan, the power consumption of mining operations is estimated to have increased to about 8% of Kazakhstan's total power production at its peak.

In October 2021, three power plants in the northeastern region experienced emergency shutdowns, leading to blackouts.

To avoid a repeat of past situations, the Kazakh government has devised a plan to separate the new digital asset mining demand from the existing public power grid.

According to this decree, excess associated petroleum gas from oil and gas fields that the state does not require can be sent to independent power generation facilities for use in digital asset mining.

Additionally, a so-called '70-30' model will be introduced.

According to Cryptopolitan, data centers and digital asset mining companies can receive up to 70% of the newly secured power capacity directly through infrastructure improvements.

This means that while the digital asset mining industry will be revitalized, the past structure that pressured the existing power grid will not be repeated.

International Automatic Exchange of Digital Asset Tax Information Starting Next Year

Kazakhstan's three-year tax exemption policy does not mean that it will abandon digital asset taxation altogether.

According to Cryptopolitan, the OECD Global Forum has stated that Kazakhstan is introducing the Crypto-Asset Reporting Framework (CARF) ahead of the first automatic exchange of digital asset tax information.

The first automatic information exchange is scheduled for 2027.

Accordingly, Kazakhstan's policy is aimed at reducing the tax burden on individual investors in the short term while moving digital assets from overseas and informal markets to the domestic regulated market, and in the long term, integrating into an international digital asset taxation and information-sharing system.

In the past, Kazakhstan rapidly emerged as a global Bitcoin mining hub after China's ban, but it paid the price of burdening its power grid.

This time, it is attempting to rebuild the market by guiding digital asset trading into the regulated market through tax benefits while establishing a separate energy supply structure for mining.

The success of this policy will depend on how much of the estimated one million digital asset wallets actually move funds to the licensed local exchanges.

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