Isfahan, arguably Iran's most beautiful city, has seen its famous river dry up in recent years. AFP
Isfahan, arguably Iran's most beautiful city, has seen its famous river dry up in recent years. AFP
Isfahan, arguably Iran's most beautiful city, has seen its famous river dry up in recent years. AFP
Isfahan, arguably Iran's most beautiful city, has seen its famous river dry up in recent years. AFP


Bad politics is the main threat to the Middle East's water


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July 25, 2021

In 1798, the economist Thomas Malthus outlined his theory that the Earth's capacity to support humans will not be enough to match exponential population growth. Thankfully, he has been proven largely wrong. The number of people on the planet when he was writing stood at 800 million. If his observations were right, we would never have reached today's number of almost eight billion. But the warning is still relevant, particularly as we enter an age of unprecedented environmental instability.

Few threats are more pressing than global water supply. The UN estimates that by 2025, 1.8 billion people will be living in regions with absolute water scarcity, defined as the inability to meet demand after all attempts at preservation have been implemented.

Today, the Middle East is among the earliest regions hit by the crisis. Most countries in the region are still managing to keep the taps on, but some are already being devastated. After a drought that started in March, Iran is now seeing deadly protests in Khuzestan province. Rights group Amnesty International say that at least eight protesters and bystanders have been killed. And on Friday, Unicef, the UN agency for children, announced that four million people in Lebanon are at risk of losing access to safe water. A quarter of those in jeopardy are refugees.

Khuzestan province was also hit by floods in 2019. EPA
Khuzestan province was also hit by floods in 2019. EPA

The Middle East is also going to have to deal with scarcity as a geopolitical issue. The dispute between Ethiopia and Sudan and Egypt over Addis Ababa's plan to build a massive dam on the Nile is an example of the complex diplomatic balances that will have to be struck between countries exercising a sovereign right to manage water supplies, against the rights of neighbouring states to not have theirs threatened.

Our region has known about this natural threat for years. But countries such as Iran and Lebanon are faring so much worse because of a non-environmental cause: bad governance. Iran has built 600 dams since the revolution, causing huge evaporation waste rates from reservoirs. Lebanon's preventable economic crisis, fuelled by political corruption and inaction, has pushed its water infrastructure to the brink.

Others are coping because governments have bought valuable time by preparing for a more vulnerable future. At first glance, the deserts of the Gulf would appear to be a more likely victim of shortages than a once fertile, agrarian state such as Lebanon. And while challenges do exist, the Gulf region's earlier acceptance of the need to manage supplies and prepare has allowed it to support a massive, decades-long increase in its population, while avoiding the terrible disruption seen today elsewhere.

There is still hope for countries that have not planned sufficiently to avoid a Malthusian reality, but governments will need to recognise mistakes, act quickly and make amends for their part in fuelling this premature crisis.

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Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

8. Pillar 2 implementation 

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

Updated: July 25, 2021, 3:00 AM