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Source: TAXDAO
Ethiopia became the first African country to start Bitcoin mining. Although Ethiopia still banned cryptocurrency transactions, it approved laws that are favorable for mining in 2022, allowing “high performance computing” and “data mining”. According to Bitcoin, BitcoinData from the mining service company Luxor TECHNOLOGIES. In 2023, Ethiopia ranked fourth in the preferred destination of Bitcoin mining equipment, after the United States, Hong Kong and Asia.According to its estimates, Ethiopia has become one of the world’s largest Bitcoin mining machines.This article analyzes the Ethiopian encryption tax system, and specially analyzes the tax and tax rates that mining companies may involve.
1 related tax issues of mining
1.1 The concept of mining
Mining is an act of obtaining digital currency.It is a way to solve the complex mathematical problems in the network through computer operations to obtain rewards.In the field of cryptocurrencies such as Bitcoin, mining is widely used.Simply put, mining is a computing behavior to obtain a certain digital currency.
1.2 Mining income
Mining income refers to rewards obtained by using computer equipment to participate in the consensus mechanism of encrypted asset networks to verify or create new crypto asset units.The source of mining income can be divided into two types: one is a fixed block reward, that is, whenever a new block is added to the blockchain, the mininger will get a certain number of encrypted assets; anotherOne is the variable transaction fee, that is, each transaction will pay a certain percentage or amount of the amount to the mininger who verifies the transaction.The calculation method of mining revenue depends on the consensus mechanism adopted, with two main types: workload proof POW (Proof of Work) and equity proof POS (Proof of Stake).
1.3 Taxation of mining
The tax treatment of crypto asset mining business mainly depends on the definition of encrypted assets, asset classification, and the confirmation and measurement of mining revenue and expenditure in the country or region.Due to the different countries or regions, mining income is also mainly involved in taxation. The main taxation of the tax is mainly involved.
The first is direct tax, that is, income tax and capital gain tax for mining income.Most countries involving mining business will use mining income as an enterprise or individual’s business income, and levy corporate income tax or personal income tax.The income tax rate is determined according to the identity (individual or enterprise), income level, and place of residence.
Followed by indirect tax, the value -added tax or cargo service tax is levied on mining income.At present, various countries or regions have not yet formed unified opinions on the collection of value -added taxes or cargo labor taxes for mining revenue.In the European Union, most countries believe that the mining business is not applicable to VAT.In accordance with the documents such as tax levy of virtual currency activities issued in 2017, Israel regards the mining business as a service and levies 17%of VAT.New Zealand also regards the mining business as a service and levies 15%of the cargo labor tax.
Some countries will impose consumption taxes on mining companies for the consideration of industry resource adjustment.For example, the United States, according to the “Budget Supplementary Description Documents” issued by the U.S. Finance in March 2023, one of the clauses are recommended to levy consumer taxes in stages according to the power cost used in cryptocurrency mining.And the type of electricity used.
2 Advantages of Ethiopian mining
Battered by politics and economic retrograde, Bitcoin miners are usually attracted by some governments of low power costs and friendly government in the cryptocurrency industry.Although Ethiopia still prohibits cryptocurrency transactions, Bitcoin mining has been allowed since 2022.For all companies that make cryptocurrency mining, Ethiopia has become a rare opportunity, so the following brief analysis of the advantages of Ethiopian mining.
2.1 Other countries’ resistance to cryptocurrency mining
Due to climate change and power scarcity, other countries and regions have strong resistance to cryptocurrency mining.For example, a series of developing countries such as Kazakhstan and Iran initially accepted Bitcoin mining, but when its energy use caused domestic dissatisfaction, the policy began to transform into non -support and resistance.In 2021, the Chinese government also banned Bitcoin mining.Most countries are prohibited from cryptocurrencies.Because countries may consume as much as possible, so that the miners do not have room for expansion.Secondly, the miners may be suddenly regarded by the government as uncomfortable and forced to leave.
2.2 Cheap electricity
Bitcoin mine opportunities use a large amount of electricity, and electricity accounts for 80%of the operating cost of miners. Therefore, gaining cheap power is a key competitive advantage for mining.Bitcoin mining in 2023 consumed 121 trillion watt -time electricity, and its dependence on enriched power is its main weakness, because dependence on power may be used to occupy the use of factories and household power, so that mining companies face political resistance.Ethiopia is low in electricity, as shown in the figure (source: Statista Research Department).National Electric Power Corporation of Ethiopia said that it has reached a power supply agreement with 21 Bitcoin miners, all of which are from China.
2.3 Ideal resources and climate conditions
In the context of global warming, although miners claim that they are using clean energy more and more, Bitcoin mining is increasingly regarded as a factor in global warming.A study released by the United Nations shows that 2/3 of the electricity used in Bitcoin mining in 2020 and 2021 comes from fossil fuel.
Ethiopia can use its rich excess green energy and renewable energy sources to provide electricity for its citizens through Bitcoin mining.Ethiopia’s ability to provide electricity for Bitcoin mining may be comparable to Texas within a few years.The completion of the GerD project will make Ethiopia’s power generation capacity of 5.3 Gava, and the power generation capacity has doubled.The advantage of Ethiopia is not just cheap and renewable energy.Its climatic conditions are also very suitable. The ideal temperature of mining is 5 to 25 degrees Celsius, which is just in line with the average temperature of Ethiopia.
2.4 The attitude of the Ethiopian government
The Ethiopian government allows Bitcoin mining, mainly because these mining companies pay the electricity consumed by foreign currency, and the power company collects a fixed rate of 3.14 cents per kilowatt -hour to Bitcoin miners.EssenceExpanding foreign exchange inflows to alleviate economic challenges, and regard the mining industry as an attractive investment opportunity to achieve this goal.According to data from the PROJECT Mano, incorporating Bitcoin mining into Ethiopia economy may contribute 2 billion to $ 4 billion to its GDP.Government accepting Bitcoin mining can roughly block the road of mining to break through foreign exchange control.It can also increase employment, increase tax sources, and reduce water during the flood season of hydropower stations.
3. Taxation research by Ethiopian mining companies
3.1 Taxation system for Ethiopia
3.1.1 Taxation structure
Ethiopia implements a system of tax division of federal government and state governments.Each state will pay a certain percentage of taxes to the federal government.The federal government allocates funds to the states based on the population, economic conditions and taxation of various regions.
The central tax includes tariffs and other cargo import and export tax; personal income tax hired by the central government and international employers; the central government has the profit tax, personal income tax and VAT of the company;Taxation of train and shipping activities; taxes for rent income of houses and property owned by the central government; taxes that may be available and service fees issued by the central government.
The sharing taxes of the central government and local governments include the company’s profit tax, personal income tax, value -added tax, franchise fees, and large -scale mining of land rent tax for oil, natural gas, and forest resources.
3.1.2 Taxation that may involve the may involve Ethiopian mining companies
(1) Enterprise Income Tax
Any enterprise that acquires income in Ethiopia needs to pay income tax. The income tax taxpayer is divided into three categories, namely Class A taxpayer, Class B taxpayer, and Class C taxpayer.Among them, the taxpayer of the corporate income tax is Class A taxpayer.According to the nature of the income, the income tax law divides it into five categories, which are category A, Class B, Class C, Class C, D and E.Among them, the income type involved in corporate income tax taxpayers is the income of Class B (30%), Class C (30%), Class D (10%or 5%), and Class E (tax exemption).
(2) VALUE Added Tax (VAT)
The scope of taxation for VAT in Ethiopia is the provision of goods and labor, import taxable products and specific import services, and the registered taxpayers who are registered with the total value obligations engaged in taxable transactions and VAT registered with voluntary registration.Calculating VAT according to the deduction method, when the amount of input tax is greater than the output tax amount, you can choose to retain, return or pay other taxes.The tax rate is divided into two grades, with a basic tax rate of 15%and zero tax rate.Value -added tax is declared monthly.Mining companies involve the transmission of thermal, electricity, gas or water or electricity provided, involve VAT.
(3) Capital Gains Tax
Capital gains achieved the income for transferring operating assets.In Ethiopia, Class D income stipulated in the income tax law is required to pay income tax (that is, capital profit tax).The buildings owned are used for commercial, factories, and offices, with a tax rate of 15%; the company’s shares have a tax rate of 30%.
(4) Royalty Tax
在埃塞俄比亚，特许权使用费是指为使用或有权使用任何文学、艺术或科学著作，包括电影影片、无线电或电视广播使用的胶片、磁带的版权，任何专利、商标、设计或模型、图纸、Secret formulas or secret procedures, or various funds paid by any industrial, commercial, and scientific equipment; or pay for various payments for information, business, and scientific information information.The fees for usage are levied at a single tax rate of 5%.
3.2 Analysis of Taxation of Mining Enterprises in Ethiopia
Cryptocurrency companies operating in Ethiopia need to apply to the country’s network security institution Information Network Security Administration (INSA) for registration.The encryption company that fails to comply with the registration requirements will be taken corresponding legal measures.At the same time, INSA has the power to regulate encryption products and related transactions.In addition, INSA will be responsible for developing operating procedures and the construction of encrypted infrastructure.
Ethiopia implements the principle of collecting territorial territorial principles and the principles of human beings. Any enterprise that obtains income in Ethiopia must pay income tax, and Ethiopian residents enterprises shall pay corporate income tax on their global revenue.The revenue of mining companies stationed in Ethiopia in Ethiopia is likely to be identified as Class C income, or it may be identified as a Class D income, with a tax rate of 30%.The relevant provisions of government documents have not yet been clear.The supply of electricity and thermal power needs to pay VAT in Ethiopia, and mining companies depend on power. In fact, the actual negative taxpayer of power value -added tax is actually affected by the electricity price of electricity prices.And currently does not specify how Ethiopia has qualified the mining behavior of enterprises. If it is defined to provide services or labor services, it will also involve direct payment of value -added tax.
Regarding the confirmation of mining income, many views believe that cryptocurrency mining represents the intangible assets developed by mining companies, and the cost of computers, dosage and employee costs invested by miners are used for construction and mining internal development intangible internal development.Assets, revenue or benefits should be confirmed when the cryptocurrency is sold.There is no clear rules and regulations that Ethiopia currently has a tax preferential tax preferential system for mining companies, but mining companies may apply some original tax preferential policies, such as resolving tax benefits given by employment.And if mining companies involve imported activities such as mining machines, they will also involve the payment of tariffs. The specific regulations and related tax rates need to be further clarified.
Reference
[1] State Administration of Taxation. (2023). Chinese residents invest in Taxation Guide in Ethiopia
[2] TAXDAO. (2023). Encrypted mining companies are more suitable for landing in Hong Kong or Singapore
[3] Techub news. (2023) .Chinese bitcoin miners find a new crypto haven in ethiopia
[4] Zheng Mengya, Wang Coco, Wang Zhenni, Yan Huqin. (2021). The study of the taxation problem of cryptocurrencies under the background of the digital economy-take the mining mechanism of Bitcoin as an example. The world economic exploration. 201,10 (1):1-8.
