ABSTRACT The main purpose of this study was to examine the taxation policy and performance of small and medium enterprises using Lubaga division, Kampala district as a case study. With a highly competitive business environment today. taxation policies plays an important role in management of Small and medium enterprises. It is important for small businesses to establish taxation policies that improves performance of workers. The study was guided by the following questions: (i) What are the taxation theories in relation to the performance of small and medium enterprises in Lubaga division Kampala? (ii) What are taxation policies and performance of small and medium enterprises in Lubaga division Kampala district? (iii) What is taxation and performance of small and medium enterprises in Lubaga division Kampala? A descriptive research was used. The population of the study comprised of all the traders of small and medium enterprises in Lubaga division Kampala. The census technique was used in the study to select the respondents from traders , in order to capture the entire population, thus the sample size of the study was 50. Primary data for the study was gathered using a structured questionnaire developed by the researcher, specifically for this study. Descriptive analysis was used to determine the proportions and frequency of the variables. Correlation tests were used to draw inferences about the population from the samples, and statistical package for social sciences (SPSS) was used to facilitate the data analysis