Pakistan is preparing a new private equity framework aimed at attracting $10 billion to $15 billion in tax-neutral investment from domestic and international investors. The government plans to finalise the framework within the next two weeks, with policy measures to be included in the Finance Bill for fiscal year 2027 to 2028.
Regulatory changes, however, are expected to begin immediately after the framework is finalised, without waiting for the next budget. That sequence matters, because it means businesses and funds could see rule changes before the finance bill itself is passed. The framework was presented to Finance Minister Muhammad Aurangzeb during a meeting of the prime minister’s committee tasked with developing the National Private Equity Framework.
The aim is to channel more capital into businesses and commercially viable projects. Private equity funds buy stakes in companies, help them grow, and later sell those stakes. For that model to work, investors need clear rules on entry, exit, tax and transparency. The new framework is designed to provide those rules in Pakistan.
Private equity framework: what the committee reviewed
The committee reviewed regulatory and tax reforms, domestic capital mobilisation and opportunities to build a stronger private equity market. Participants also examined investment potential from acquisitions, business consolidation, new projects and exits by existing investors. Those four routes cover the main ways private equity creates value: buying and improving a business, combining smaller firms, funding new ventures, and giving early investors a way out.
The proposed framework draws on models in the United Kingdom, the Middle East and India, which are estimated to have attracted $100 billion to $150 billion in investment. Pakistan’s target of $10 billion to $15 billion is smaller, but it would still mark a major step for a market that has lacked a dedicated framework until now.
The committee also discussed ways to channel funds held by banks, insurance companies, mutual funds, pension schemes and development finance institutions into private equity. Local corporations and family offices were also identified as potential sources of investment. That focus on domestic capital is deliberate. Aurangzeb emphasised that mobilising domestic capital should be the immediate priority, laying the groundwork for attracting foreign institutional investors and international co-investment later.
A participant pointed to real estate investment trusts (REITs) as an example: rule changes letting banks raise REIT exposure had grown the sector’s portfolio from Rs22 billion in 2021 to more than Rs280 billion.
Why investors want clear entry and exit rules
Officials said foreign investors and institutional funds, particularly those from friendly countries, typically seek a clear policy framework with predictable entry and exit rules before committing capital. That requirement becomes particularly important when Pakistani government delegations present investment opportunities in sectors such as minerals, real estate, agriculture, oil and gas, tourism and manufacturing.
Without clear exit and tax rules, an investor can struggle to sell its stake and cannot forecast returns. The framework therefore treats transparency, fund structures and institutional participation as core questions.
The State Bank of Pakistan briefed participants on recent regulatory changes, including an increase in the permissible investment limit for banks in a single private equity fund from 10 per cent to 20 per cent. That change alone allows banks to take larger positions in individual funds, which in turn allows funds to raise more capital for each investment.
The committee also discussed developing a pipeline of investment opportunities over the next five to 10 years, supported by domestic liquidity directed towards productive activity.
Tax changes under consideration
On taxation, the meeting considered proposals for a clear and predictable framework, including treating private equity funds as pass-through vehicles, with taxes applied at the investor level. Under that model, the fund itself would not be taxed as a separate entity. Instead, tax would fall on investors according to their own circumstances.
Aurangzeb called for international tax models to be assessed and adapted to Pakistan’s economic and regulatory conditions. He said the proposed arrangements should support legitimate investment while preventing tax arbitrage, unintended distortions and regulatory inconsistencies. That warning matters, because a pass-through model must be designed carefully to avoid creating loopholes.
