Pakistan advances national private equity policy framework

Govt reviews tax neutrality, capital gains treatment, institutional investment and regulatory reforms; framework aims to mobilise domestic and foreign long-term capital while introducing safeguards against tax arbitrage and misuse The federal government is moving to develop a National Private Equity Policy Framework aimed at attracting domestic and international long-term capital, with proposed reforms covering taxation, institutional investment, capital gains, repatriation and exit mechanisms. Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb chaired the second meeting of the committee constituted to develop the framework, according to a Finance Division statement issued on September 3. The committee reviewed progress on separate regulatory, taxation, institutional investment and other policy work streams established after its first meeting, with the government seeking to consolidate them into a practical national framework. The proposed framework is intended to strengthen Pakistan's private equity ecosystem and channel long-term capital into businesses and productive sectors while maintaining regulatory safeguards and fiscal discipline. On the regulatory side, the committee reviewed measures being considered by the State Bank of Pakistan (SBP) to facilitate institutional participation in private equity, including investment, repatriation and exit arrangements. It also discussed the accounting treatment of private equity investments under existing banking requirements and International Financial Reporting Standards (IFRS), with a focus on facilitating participation by banks, Development Finance Institutions, insurance companies and pension funds while maintaining prudential and accounting requirements. Taxation formed another major part of the discussions, with the committee considering the principle of tax neutrality for private equity structures. Under the proposed approach, the pooling structure itself would not create an additional layer of taxation, while income would remain taxable at the level of those ultimately earning it. The committee examined existing income-distribution requirements applicable to funds and discussed measures to facilitate investment without creating opportunities for tax arbitrage or erosion of the tax base. Disclosure, registration and anti-avoidance measures are also expected to form part of the framework. The government is separately examining the tax treatment of capital gains arising from transactions involving private companies. The committee discussed developing a system that would avoid unnecessarily discouraging legitimate investments and exits while protecting against undervaluation and other potential misuse. It stressed the need for transparent and credible valuation mechanisms, potentially drawing on internationally recognised private equity valuation practices. The meeting also reviewed work by the Securities and Exchange Commission of Pakistan (SECP) on the proposed legal and regulatory framework for private equity and venture capital. Discussions focused on expanding the domestic institutional investor base and providing greater regulatory clarity and certainty to investors and fund managers. Aurangzeb said private equity could provide businesses with patient, long-term growth capital while supporting domestic investment, entrepreneurship, employment and productivity. He stressed that the objective was not simply to create additional financial structures but to ensure that the proposed framework resulted in actual mobilisation of capital and productive investment. The government also wants to develop domestic fund-management capacity and connect Pakistani businesses and investment opportunities with larger pools of institutional capital, including international investors. The committee agreed that the regulatory, taxation and legal work streams would continue coordinating their work and consolidate their recommendations into a national framework. Relevant institutions were directed to continue technical assessments and bring outstanding issues and recommendations back to the committee. Aurangzeb called for a sequenced transition from policy design to implementation, with the proposed framework intended to complement traditional bank financing and capital-market funding. The meeting also noted Pakistan's recent $3 billion dual-tranche Eurobond issuance and participation from international investors. Aurangzeb said the response from global capital markets provided an encouraging backdrop for efforts to deepen the equity side of Pakistan's capital market and diversify sources of long-term financing. The committee agreed to proceed with priority recommendations while incorporating safeguards against misuse and arbitrage as work on the National Private Equity Policy Framework continues.