The objective of the study is to examine the nature, practices, and challenges of VATrnimplementation in Ethiopia and identify areas of weaknesses and strengths towards thernachievement of VAT Objectives. In doing so, the paper further assesses the impact of VAT torngross domestic product and total government revenues.rnThe study used both qualitative and quantitative research methods to collect and analyze bothrnprimary and secondary data. Self-administered questionnaires to the ERCA employees and VATrnregistered respectively were used to collect primary data. Secondary data was collected fromrnERCA, MoFED by way of reviewing documents from previous studies. The Statistical Packagernfor Social Sciences (SPSS) version 17 and STATA 11 was the method used for quantitative datarnanalysisrnThe study paper discovered that during the implementation of Valued Added Tax since the yearrn2003 till to date; the major challenges hindering ERCA from generating what was initiallyrnplanned are: lack of sufficient number of skilled personnel, limited staff capacity, nonresponsivenessrnby the management, limited awareness creation, problems related withrninvoicing, unfair competition, and control centered management tendency. The paper suggestsrnthat in Ethiopia, attempting to implement what is legislated in the main areas deserves thernGovernmentâ€™s due attention. The study also emphasizes the need to strengthen thernadministration capacity in general and the VAT collection system in particular as efficiently asrnpossible. The empirical analysis disclosed that VAT contributes significantly to the increase ofrnthe total government revenue and the economic growth of Ethiopia at large. Finally, if Ethiopiarnjoins the World Trade Organization, the country needs to enhance domestic based resourcesrnmainly generated from Value Added Tax. In this regard, the paper has far-reaching policyrnimplication in an effort to improve tax collection.rnKeywords; VAT, WTO, government revenue, unfair competition, GDP