Real property taxation in general and rural land use fee and taxation in particular are important to generate revenue for local governments and it enables to use the rural land effectively and efficiently. Economic theories provide a strong case for land taxation to improve the economic efficiency of fiscal systems especially for developing countries with highly distortionary tax systems. Though rural land taxation had been the main source of revenue in the imperial regimes of Ethiopia, it stopped to continue in the Derg regime and the place of rural land taxation is not clearly defined in the existing FDRE Constitution. The silence of the FDRE Constitution on such important revenue source and the existing land tenure system of the country raises a host of issues whether it is possible to employ rural land tax on one side and issues related to allocation of fiscal powers on the other. This paper aims at investigating the legal framework of rural land use fee and taxation in Ethiopia and the practice in the Amhara region and appraises the prospects and possible challenges ahead. Thus, to achieve the intended objectives and to come up with reliable findings, a qualitative legal research methodology has been employed because the research objectives and research questions cannot be addressed without employing such methodology. The finding is that the drafters of the Constitution had a clear intention on rural land taxation despite the fact that their intention has not been properly reflected in the approved FDRE Constitution. Despite such gaps, the existing land tenure system can not preclude to employ rural land taxation because it is possible to impose a rural land tax on the use right of the land. On the other hand, the base of rural land use fee introduced and the practice are incompatible. The modes of assessment are against equity and efficiency principles and the rate is nominal which does not go with the current value of produces on the land. It is also found that revenue and expenditure assignments on real property taxation in general and rural land use fee and taxation in particular are not in line with the theory of fiscal federalism. Hence, local governments in the Amhara Region remain without any expenditure ad revenue raising powers while they have access to various revenue sources. It is also found that the potential challenges on rural land tax are no longer seemed to be fatal obstacles. Thus, the rural land administration system in the Amhara Region becomes improved from time to time and the cadastral registration system is in good progress which allows employing rural land taxation. The rural land holders in the study area have a positive attitude towards rural land taxation and they think as if they were paying rural land tax. However, the Ethiopian government in general and the Amhara Regional State in particular could not use such huge resources effectively and efficiently. It is recommended that since rural land tax has multiple benefits to land holders and the government at large, it should be re-introduced in Ethiopia. Thus, there should be clear and adequate legal frameworks on rural land use fee and taxation. There must be a separate and comprehensive rural land policy and the tax institutions should be modernized. The possible challenges on employing rural land tax such as administrative costs, tax collection &compliance, modes of assessment are not fatal obstacles and these can be overcome and reduced by improving the rural land administration system. Awareness creation and modernizing the tax collection system can also reduce challenges related to tax payer’s resistance and compliance. Moreover, adequate expenditure and revenue power should be allocated to local governments to provide public services. The rural land use fee and taxation should be assessed based on quality than area based systems. The jurisprudence of rural land use fee and taxation should be developed