Research Report submitted in Fulfillment of the Requirements for the Bachelor Degree of Business Administration in Entrepreneurship & Development Mzumbe UniversityThis study was conducted to assess the influence of income tax on the performance of Small and medium enterprises (SMEs) in Tanzania. Small and medium enterprises SMEs have been of great importance to the Tanzanian citizen and the economy at large. Many Tanzanians have managed to earn a living through Small and medium enterprises. The income tax plays a great role in the growth of (SMEs) in the developing countries like Tanzania Small and medium enterprises through income tax contribute much to development of the economies. The specific objective was to determine how tax system affects growth of small and medium s enterprises, to determine the tax policy used to administer tax on small and medium enterprise and to analyze the perception of SMEs about tax system. The study was based on a case study of the Selected SMEs in ILALA Tax region in Tanzania. The population had 2000 SMEs where a sample of 50 respondents where obtained. The data was collected through Questionnaire, observation and interview of the selected respondents. Data was analyzed using descriptive analysis method and findings where presented in terms of frequencies and percentage. The study revealed that most of the SMEs are complaining about the tax system and policies not being fair to them. Also most of them lack knowledge about the tax system and policies. Therefore there is need to consider and prepare a better environment for the administration of income tax by policy makers and also the Tax administrators should be willing to assist the SMEs to understand the Tax system and policies administered to them.