Ethiopia introduced detail (not detail enough) rules for the taxation of fringe benefits in thernrecent income tax reform conducted in 2016. The provision of vehicle by employers to theirrnemployees is provided as one of the taxable fringe benefits in the Federal Income Tax RegulationrnNo. 410/2017. The research considers whether the FBT in general and vehicle FBT in particular,rnis being effectively implemented.rnThe thesis identifies and examines the legal and practical challenges in the implementation of thernvehicle fringe benefits as employment income tax in Ethiopian Income Tax System. The study hasrnadopted a mixed legal research method which employed both doctrinal and non-doctrinal legalrnresearch approaches. Document analysis of legal and extra-legal materials is made. Data fromrnfield work is gathered through in-depth interviews from different stakeholders. The researchrnfound out that FBT is not being implemented effectively against employment income. There arernlegal and practical challenges for the failure. The main problem is lack of clarity in the laws inrnsetting parameters to determine what private use and business use of the vehicle is. Further, thernFBT is riddled with some practical challenges. Particularly, there is lack of awareness andrnunderstanding among employers and tax administration organs about the vehicle FBT, absencernof clear and implementable rules, and absence of adequate administrative control from the tax authority. The thesis found out that the tax authority prefers to deny deductions to corporationsrnon computing their taxable income when they provide fringe benefits. This mainly becausernemployers are easy targets. Based on the findings of the research, the thesis recommends that thernMOF and MOR to issue clear, easily understandable and implementable rules and guidelines.rnFurther, the tax administration should work on creating awareness about the FBT