The US government is considering several ways to balance its destabilised economy by reeling-in more funds into its financial systems. The crypto mining community in the US could face the burn of these tax hikes as the US government has proposed to raise the taxes on the electricity requirement for miners. The idea was part of US President Joe Biden’s annual budget speech on March 9. From amending policies around the crypto sector, the Biden administration is reportedly expecting to churn over $24 billion (roughly Rs. 1,96,700 crore) to the US economy.
The tax imposed on the electricity usage by crypto mining firms could now go as high as 30 percent of total cost of the electricity that was used to facilitate the mining process in the US.
While sufficing the US Treasury is among key reasons behind this proposal, the US is also looking to curb the excessive environmental impacts that have been known to be by-products of the energy-intensive crypto mining business.
“Firms engaged in digital asset mining would be required to report the amount and type of electricity used as well as the value of that electricity, if purchased externally. Firms that produce or acquire power off-grid, for example by using the output of a particular electricity generating plant, would be subject to an excise tax equal to 30 percent of estimated electricity costs,” the US Treasury disclosed in an official post.
The excise tax for digital asset mining firms would be executed gradually, in a decided time frame of three years. It would start at a rate of 10 percent in the first year, 20 percent in the second, and 30 percent thereafter.
One of the few surprises in the Biden budget. A proposed excise tax on electricity usage from crypto mining. Phasing in at 10% in year one and climbing to 30%. pic.twitter.com/UPgUdr8CeG
— John Buhl (@jbuhl35) March 9, 2023
Crypto mining is the process of generating newer crypto tokens. Miners are required to solve complex algorithms to validate transactions happening on the blockchain and generate newer tokens as rewards and by-products.
Before 2021, China was emerging as the hotspot for crypto miners. After China imposed a blanket ban on all crypto activities in September 2021, miners flocked to other favourable locations including Kazakhstan, Russia, El Salvador, as well as regions in the US like Texas and New York State among others.
The US was named as the world’s largest Bitcoin mining hub last year by Cambridge researchers. The crypto mining activities in the US in around 2021 reportedly made up for around 37 percent of the global hashrate, a metric used to measure the computing power used for mining.
With the job opportunities that the crypto mining business brings in, US’ Kentucky state has begun evaluating cost-effective ways to generate electricity to support the mining industry.
“An excise tax on electricity usage by digital asset miners could reduce mining activity along with its associated environmental impacts and other harms. The increase in energy consumption attributable to the growth of digital asset mining has negative environmental effects as well as increase energy prices for those that share an electricity grid with digital asset miners,” said the US government, justifying the tax hike it plans to levy on the crypto mining business.
The implementation of this rule has been slated for next year.