This research report study aimed to investigate the “tax policies and tax compliance on small and medium enterprises of Nakawa division”. Questionnaires were used to collect data under a case study research design. Qualitative and quantitative means were used to analyze the data. The objectives of the study used were; to examine the relationship between tax awareness and tax compliance on small and medium enterprises in Nakawa division, to determine the effect of tax administration on performance of small and medium enterprises in Nakawa division, to evaluate the relationship between tax assessment and tax compliance on small and medium enterprises in Nakawa division, to assess the relationship tax policies and tax compliance of small and medium enterprises in Nakawa division. To achieve this objective, the study sampled 60 respondents because it is large enough compared to the study population, the respondents were selected using simple purposive sampling method, it was important because it gave the researcher freedom to select certain respondents with in-depth knowledge regarding the issue under investigation. The study findings shown that tax compliance significantly affected the performance of SMEs in Nakawa division since pvalue (.000) was less than the significance level. The correlation coefficient was (0.55) which implied that there was a moderate positive relationship between tax compliance and the performance of SMEs. Therefore, according to the results, tax compliance had a statistically significant moderate positive effect on the performance of SMEs. From the findings it was recommended that tax administration should reduce criminal aspects of tax evasion with well know tax measures. Further, tax administration should use current tax reform to reduce tax complexity with Tax authorities should focus and help taxpayer during filing taxes returns information.