By Dr. Ikram Ul Haq

Pakistan is a signatory to the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), under which the international community has agreed on the so-called Two-Pillar Solution to modernise corporate taxation in an increasingly digital and globalised economy. While these reforms have generated extensive global commentary, a basic question remains largely unanswered in Pakistan’s policy discourse: what do Pillar One and Pillar Two actually mean for Pakistan’s revenues?

No official Pakistan-specific estimates have yet been released by either the OECD or the Federal Board of Revenue. Nevertheless, by drawing on global projections and Pakistan’s own corporate tax structure, it is possible to develop a reasoned and indicative assessment of the potential fiscal impact.

Pillar One seeks to reallocate a portion of the residual profits of the world’s largest and most profitable multinational enterprises—primarily digital and consumer-facing firms—to jurisdictions where their markets are located, rather than where they maintain a physical presence. This represents a departure from traditional international tax principles that have struggled to keep pace with digitalisation.

For Pakistan, the revenue potential under Pillar One is positive but inherently limited. As a mid-sized consumer market with a growing digital footprint but relatively low per-capita income, Pakistan is unlikely to be a major beneficiary of profit reallocation. Even under favourable assumptions, Pillar One will not be a transformative revenue instrument.

A reasonable projection places Pakistan’s annual gains under Pillar One in the following ranges:

PKR 9–25 billion under a conservative scenario
PKR 18–50 billion under a baseline scenario
PKR 29–81 billion under an optimistic scenario

These outcomes depend on how much Pakistan-sourced revenue is attributed to in-scope multinational enterprises and how final allocation and dispute-resolution rules are applied. The design of Pillar One also limits its reach to a small number of exceptionally large companies, further constraining its revenue impact for developing economies like Pakistan.

The real fiscal significance for Pakistan lies in Pillar Two, which introduces a global minimum effective corporate tax rate of 15 percent for large multinational groups. Unlike Pillar One, Pillar Two directly addresses profit shifting to low-tax jurisdictions and therefore offers the potential for material and sustained revenue gains.

Measured against Pakistan’s existing corporate income tax collections, the plausible annual impact of Pillar Two can be summarised as follows:

PKR 30–35 billion under a conservative scenario
PKR 90–150 billion under a baseline scenario
PKR 210–300 billion under an optimistic scenario

These figures are not automatic windfalls. They assume that Pakistan enacts a Qualified Domestic Minimum Top-Up Tax (QDMTT), allowing Pakistan to collect any top-up tax required to reach the global minimum. Without such legislation, the additional tax will instead be imposed by foreign jurisdictions.

Taken together, the Two-Pillar Solution could yield the following indicative annual gains for Pakistan:

PKR 40–55 billion under a conservative scenario
PKR 110–200 billion under a baseline scenario
PKR 240–380 billion under an optimistic scenario

Even the baseline outcome is fiscally significant in a country grappling with chronic revenue shortfalls, rising debt-servicing costs, and repeated reliance on extraordinary taxation measures.

The most important issue is not merely the size of the potential gains, but where the revenue is ultimately collected. Pillar Two does not guarantee that Pakistan will receive additional tax simply because profits are earned within its territory. If Pakistan fails to legislate a domestic minimum tax, the right to collect the top-up will pass to foreign jurisdictions where parent companies are resident.

Non-implementation would therefore amount to exporting Pakistan’s tax base abroad. Effective implementation, by contrast, would strengthen fiscal sovereignty without increasing headline corporate tax rates or imposing new burdens on domestic enterprises.

Pakistan’s persistently low tax-to-GDP ratio reflects deep structural weaknesses in tax design, enforcement, and political economy. In this context, the Two-Pillar Solution should not be viewed as a panacea. It cannot substitute for domestic reforms such as broadening the tax base, rationalising exemptions, improving documentation, and strengthening institutions.

Yet it does offer a rare opportunity to mobilise additional revenue without penalising compliant taxpayers and without further distorting the domestic tax system.

At a time when Pakistan is debating tax justice, equitable burden-sharing, and sustainable revenue mobilisation, the Two-Pillar Solution should be approached not as an abstract international commitment but as a concrete policy choice. Pillar One may deliver modest gains, but Pillar Two presents a real opportunity—provided Pakistan acts decisively.

The choice before policymakers is clear: either implement Pillar Two in a manner that secures Pakistan’s taxing rights, or allow those rights to be exercised elsewhere. In fiscal terms and in constitutional principle, the stakes could hardly be higher.

Pakistan.

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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds LLD in tax laws. He was a full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served in the Civil Services of Pakistan from 1984 to 1996.