This thesis examines designs and practices of micro and small business taxation in Ethiopia. The study adopts a qualitative research approach specifically; the study uses in-depth interviews with key informants from tax offices, taxpayers and street, and Sunday market traders. The study also uses data acquired through document reviews. The study reveals that the current tax legislation in Ethiopia solely depends on the annual gross income threshold to define the size of the taxpayer and the tax regime is not better targeted to taxpayers, and nor encouraging the graduation of taxpayers since taxpayers are unwilling to upgrade their threshold. Moreover, the existence of unfair treatment among the same business, the over estimation of daily sales during the time of assessment, limited taxpayers willingness to provide accurate information, an exaggerated expense reports by small business taxpayers were found as a major problems for the tax assessment and collection practices of the tax authority. This study also found that street and Sunday market traders continues vending without being officially registered for taxation and their business income is not taxed at all due to their worry about tax levels, they do not believe they will receive service in return for payments, and small capital are raised as a reason for not paying tax. The majority of small business taxpayerâ€™s maintain a simplified cash basis of books of account however these books of account are frequently ignored and subject to amendments, as a result, most of the small business taxpayers discouraged to keep accounting records. Finally, this study suggests that the government may introduce flat fee and considerably increased eligibility thresholds presumptive system to facilitate taxpayer transition to general tax regime