The study aimed at taxation and performance of small and medium sized enterprises in uganda; a case study of Kebisoni town council, Rukugiri district and it was guided by the following objectives; To examine the relationship between tax compliance and the business performance of SMEs in Kebisoni Town Council, Rukugiri, to assess the relationship between tax rates and the business performance of SMEs in Kebisoni Town Council, Rukugiri and to analyze the relationship between tax incentives and the business performance of SMEs in Kebisoni Town Council, Rukugiri. A descriptive research design was adopted for the study since it focuses on the people as well as their attributes which enable the investigator to understand and examine the influence of taxation on SME performance. This was achieved using a survey questionnaire, observation schedule, and document analysis. The study population concentrated on Managers and employees of SMEs in Kebisoni Town Council. The study area was limited to this one SME in Rukugiri since the majority of the SMEs are established in urban areas. The findings in table 2 above reveal that tax rates had a significant effect on the performance of SMEs in Kebisoni Town Council since p – value (.000) was less that the significance level. The correlation coefficient (0.689) shown a strong positive relationship between tax rates, and the performance of SMEs in Kebisoni Town Council. Tax rates have a statistically significant strong positive effect on the performance of SMEs in Kebisoni Town Council, Rukugiri, Uganda. The study recommends that the government of Uganda should design an effective tax rate in such a way that it is not based on the taxable profits as demarcated in the law but on an economic measure which includes the impact of the tax base. This will lower the cost of production for the goods and services which will eventually ensure favorable prices for the goods and services being provided to the customers and thus increase sales turnover and the performance of SMEs in Uganda.