This study looked at the impact of tax evasion and tax avoidance on the economy; a case study of Kalerwe market. The purpose of this study was to examine the impact of tax evasion and avoidance on the economy using Kalerwe market as the case study. This study was guided by three main objectives that is, to examine the impact of smuggling on the economy a case study of Kalerwe market, Kampala district, to assess the effects of false tax returns on the economy a case study of Kalerwe market, Kampala district and to evaluate the relationship between legal loopholes and the economy a case study of Kalerwe market, Kampala district. The study used descriptive research design. On top of this the design exploited both qualitative and quantitative approaches. Qualitative approach included the use of interviews, while quantitative approaches involved the use of descriptive statistics generated with frequency tables, graphs, and Charts. These approaches adopted to enable the researcher to get and analyze relevant information concerning the impact of tax evasion and tax avoidance on the economy. The table 1 above indicates that 51.4% strongly agree, 45.8% agreed, 2.8% of the respondents are not sure yet none of the respondents disagree or even strongly disagrees with the point that tax evasion generates investment distortion. From the findings, tax evasion and avoidance reduced government income leading inability to create employment for youths and social services represented with the following statistics 44.3% strongly agree, 51.4% agreed, 0.0% not sure, 4.3% disagreed and 0.0% strongly disagreed. Further still, the table above indicates that 40.0%, strongly agreed, 32(45.8%) agreed, 2(2.8%) are not sure, 6(8.6%) disagreed and 2 (2.8%) strongly disagreed that the vices of tax evasion and tax avoidance have caused national budget deficits. The statistics also show that 37(52.9%) strongly agree, 29(41.4%) agreed, only 1(1.4%) is not sure, 3(4.3%) disagreed and 0(0.0%) strongly disagree tax evasion and avoidance have led to increased money in circulation paving way to inflation. Public awareness is highly necessary, where there is proper knowledge at the disposal of the people, they will understand that tax payment is their moral right and civic responsibility. In other words, the practice of tax morality will be a lifestyle and willingly taxes will be paid without the effort of the government to force compliance. Received: 14.10.2023 Accepted: 20.10.2023 Published on: 30.10.2023 Corresponding: Author: research.miu.ac.ug/publications 168METROPOLITAN JOURNAL OF SOCIAL AND EDUCATIONAL RESEARCH ISSN: 1813-4270 Vol. 2 Issue 7, October - 2023, Pages: 167-177