Sales Tax was a provincial matter when Pakistan was founded. In Punjab & Sindh, the levy was administered as a provincial levy. General Sales Tax Act, 1948 was enacted in 1948, establishing sales tax as federal tax, and in 1952, the Central Government permanently acquired this Tax. Every time a sale was made, sales tax was charged at the standard rate of six pies per rupee. Sales Tax Act 1951 was enacted as a result of protests by the trading community against this system.

The government established a system in which approved manufacturers and wholesalers were allowed to purchase goods from one another without payment of sales taxes and to pay tax on sales to unlicensed traders. Licensees were allowed to import goods without paying Sales Tax, while imports were subject to Sales Tax. In time, sales tax started being charged at the time of sales and imports of locally produced & imported goods. The Central Excise Department has also been provided with the power to collect tax on non-excisable items in accordance with a 1981 amendment in the Sales Tax Act, 1951.

After the advent of the Value Added Tax in the early 1980s, the government decided to replace Sales Tax with VAT in the framework of its structural adjustment program, which aimed at correcting anomalous and distorting aspects of the Sales tax and non-tax policies. As a result, the Sales Tax Act of 1951 was repealed by the Sales Tax Act of 1990.