Paraguay

Paraguay’s legislature fails to reverse presidential veto on crypto regulation law

Just 38 out of 80 members of Paraguay’s Chamber of Deputies voted to reconsider a bill to cap electricity rates for the country’s crypto miners.

The lower house of Paraguay’s bicameral legislature has failed to move forward on a bill aimed at promoting crypto mining through the use of surplus electricity following a veto from President Mario Abdo Benítez.

In a Dec. 5 session, members of Paraguay’s Chamber of Deputies discussed the pros and cons of incentivizing crypto miners to operate in the country with a cap on the electricity rates, but ultimately voted against amendments that would have effectively reversed a presidential veto. The discussion included how a lack of regulation around crypto-related activities had led to events like the downfall of FTX, the potential benefits of crypto mining in Paraguay as well as the volatility of cryptocurrencies like Bitcoin (BTC).

“Crypto mining would generate a source of employment, investment in capital, municipal taxes, [value-added tax], and a lot for local economies,” said Deputy Carlos Sebastian Garcia. “It is appropriate to reject the veto so as not to leave the field free again so as not to leave everything totally regulated and to give a starting point to an industry that has a lot of potential and has a lot of room for growth.”

“The rate with which the energy would be awarded to this industry is 15% above the industrial rate,” said Deputy José Reynaldo Rodríguez. “The people and the citizens would be subsidizing the cost of energy. Allocating this price to these types of industries would cause a loss of $30 million annually to the state.”

Just 38 out of 80 lawmakers voted to reconsider the bill, titled “Regulating the industry and marketing of virtual assets — crypto assets.” Nine lawmakers voted against the measure, with the rest absent, abstaining or voting “blank.”

Paraguay’s Senate originally approved the bill in July, which would have recognized crypto mining as an industrial activity in a country known for low electricity rates. The lawmakers also voted to establish a 15% tax on related activities. However, President Benítez vetoed the measure in August, leading to lawmakers revisiting it in December.

Related: Tax guidelines for crypto mining pass the first reading in Kazakhstan

Low energy costs in Paraguay have seemingly encouraged local and foreign mining firms to install rigs and other infrastructure, taking advantage of the country’s energy surplus. Neighboring Uruguay has also moved forward with crypto regulation, introducing a bill in September aimed at establishing the country’s central bank as the regulatory authority on digital assets.

President of Paraguay vetoes crypto regulation law

The bill was approved by the nation’s Senate in July as low-energy costs continue to boost mining activities in the country.

Paraguay’s president, Mario Abdo Benítez, vetoed a bill that sought to recognize cryptocurrency mining as an industrial activity on Monday. He reasoned that mining’s high electricity consumption could hinder the expansion of a sustainable national industry. 

The decree stated that crypto mining uses intensive capital with low manpower usage and, therefore, would not generate added value on par with other industrial activities. Around the world, cryptocurrency is one of the largest job creators. LinkedIn’s Economic Graph shows that crypto and blockchain jobs listing rose 615% in 2021 compared to 2020 in the United States.

In accordance with the bill’s sponsor, Senator Fernando Silva Facetti, the law aimed to promote crypto mining through the use of surplus electricity, but the Paraguayan government chose to ignore the activity in the country:

The Paraguayan Senate ultimately approved the proposal on July 14, recognizing crypto mining as an industrial activity. They established a 15% tax on its related economic activities, but the decree sees the brackets as an indirect incentive to the industry. It says:

“By subordinating the rate applicable to the users of crypto miners to just a small percentage above the current industrial rate, an indirect industrial incentive would be offered to crypto mining.”

According to the document, in the last twelve months, industrial investment grew by 220% in the country to $319 million, while the GDP increased more than 4% in the past five years. If this rate continues, the national industry could require the total amount of energy produced and available in the country in order to remain sustainable.

“If Paraguay wants to intensify crypto mining today, in the next four years it will be forced to import electricity,” the decree said.

The bill approved by the Senate stipulates that miners would have to apply for a license and request authorization for industrial energy consumption. It also established the Ministry of Industry and Commerce as the primary law enforcement authority and the Secretariat for the Prevention of Money or Asset Laundering to supervise crypto investment companies.

The low-energy costs in Paraguay have spurred local and foreign companies to install mining infrastructure in the country since 2020. In December 2021, household electricity costs were $0.058 per kWh and business electricity costs were $0.049 per kWh, according to global petrol prices reports.

Paraguay’s crypto framework one step away from becoming law

Paraguayan lawmakers have deliberated for a year on a comprehensive crypto regulatory framework that includes considerations for businesses and traders.

The Paraguayan Senate passed a bill on Thursday establishing a tax and regulatory framework for businesses operating in the cryptocurrency and the crypto mining sectors.

The bill, introduced last July by Senator Fernando Silva Facetti and passed in Congress in May before reaching the Senate, calls for the formation of the Ministry of Industry and Commerce (MIC) to oversee crypto industry service providers. The bill is now one step away from being ratified as law by President Mario Abdo Benítez.

A notice from Congress in May stated that the bill pertains specifically to crypto mining, commercialization, intermediation, exchange, transfer, custody and/or administration of crypto assets or instruments that allow control over crypto assets.

Local news outlet ABC reported on Thursday that companies that operate in the crypto industry would be treated the same as those dealing with securities for tax purposes. As a result, they will be exempted by the Undersecretary of State for Taxation from paying a value-added tax (VAT) but will be included in the income tax regime.

The bill reportedly considers how crypto miners should interact with local power suppliers. Prospective mining operations will be required to report their energy consumption schedule to the National Electricity Administration (ANDE), Paraguay’s national electricity regime. If miners are found to be consuming more electricity than planned, ANDE may cut off their electricity supply.

While the bill stipulates that energy costs for miners will be subsidized, they will pay a rate 15% higher than other industries.

According to reports, Senator Facetti said that modifications made to the bill over the last year “improved the original project.”

Detractors to the bill, such as Senator Enrique Bacchetta, reportedly stated that while regulating the crypto industry would lead to greater profits, he questioned whether it would actually create jobs for his fellow citizens. Senator Esperanza Martinez seconded Senator Baccetta’s concerns, claiming that the energy consumption rate from miners far outpaces the number of jobs they would create.

Related: USD stablecoin premiums surge in Argentina following economy minister’s resignation

This makes Paraguay the latest LATAM nation to take a leap forward in crypto adoption and regulation. El Salvador adopted Bitcoin (BTC) as legal currency in 2021, and the governments of Brazil, Argentina and Panama are all working on their own crypto legislation.