TAXING THE DIGITAL ECONOMY: THE IMPACT OF DIGITAL SERVICES TAXES AND THE OECD TWO-PILLAR FRAMEWORK ON REVENUE MOBILIZATION IN EMERGING ECONOMIES

The rapid expansion of the digital economy has exposed a structural weakness in international tax architecture: multinational platform firms can generate substantial revenue within a country's borders while maintaining minimal physical presence, allowing much of that value to escape domestic taxation under traditional permanent-establishment rules. In response, more than forty countries introduced unilateral digital services taxes (DSTs) between 2019 and 2024, while the OECD-led Two-Pillar framework sought to establish a coordinated multilateral alternative reallocating taxing rights and imposing a global minimum corporate tax. This article evaluates the fiscal and economic effects of these competing approaches using a comparative panel analysis of eighteen emerging economies over the period 2019–2026, of which eleven adopted unilateral DSTs and seven relied primarily on Two-Pillar implementation. Employing a difference-in-differences estimation strategy alongside a decomposition of digital-sector tax revenue as a share of total corporate tax collection, the study finds that unilateral DST adopters achieved faster short-run revenue gains but faced a significantly higher incidence of retaliatory trade measures and price pass-through to domestic consumers, while Two-Pillar-aligned economies experienced slower but more stable revenue growth alongside improved investment certainty. The findings indicate that digital taxation design involves a genuine short-run trade-off between fiscal sovereignty and economic stability, and the article concludes with policy recommendations for sequencing multilateral alignment while preserving near-term revenue mobilization capacity.