The objective of this research work was to critically examine the income tax treatments of Charities and charity giving in Ethiopia. The current not for profit legal regime of Ethiopiahas recognized Charities as public benefit organizations (PBOs), form of CSOs. The public benefit status of Charities expected to be accompanied with income tax benefits, for the Charities themselves and for those who contribute for the latter’s.The Income Tax Proclamation enacted in 2016, has in fact provide some favorable treatments that can benefit Charities and charity giving. This study examined, these treatments from different perspectives, most importantly, from the perspectives of their role in enablingpublic benefit activities andother competing interests. Based on the critical analysis of relevant legislations, literatures and interviews with tax officers, it is found that the existing income tax treatments of Charities and charity giving inEthiopia, unveil developments with the recent ITP. The legal framework attempts to play its social role through incentivize both Charity as an institution and charity giving as an activity. However, the system still suffers with shortcomings. In the first place, there are no guidelines or explanations, concerning the ‘related/unrelated’ business income of Charities, which will cause possible problems in the administration of the ‘relatedness rule’, attached with the business income tax exemption of Charities. Secondly, the income tax treatment of ‘business income’ of Charities is not accompanied with the necessary conditions and restrictions, thus, pose concerns/risks of unfair competition and abuse of Charities for private gain. This goes the same to the income tax treatments of Charities ‘passive income’ sources. Thirdly, the income tax treatments of charity giving are also suffered with shortcomings, among other things: the treatment is limited to business persons and donations made to Ethiopian Charities; the treatment does not include a tax designation scheme for individuals unfit to the system of charitable deduction; and there is no carry over for donations in excess of the ceiling. All these, hindered the treatment from being meaningful. Fourthly, the available income tax treatments of CSOs do not adopt a differential treatment approach, in an adequate manner. This negates the positive roles the tax incentives could play, by being as an instrument for encouraging Charities to operate in needy areas, to mitigate the concerns of unfair competition and abuses of Charities. Therefore, to curb these problems and to improve the income tax treatments of Charities and charity giving in Ethiopia, the study recommends that the income tax laws should come up with a guideline to ease the administration of the ‘relatedness rule’ and the income tax treatments of ‘business income’ and ‘passive income’ of Charities should be attached with necessary conditions such as a restrictions on the scale of the activities and amount of exemption. In addition, the treatments for charity giving should allow carry over for donations in excess of the ceiling, the incentives should be extended to private donations and adopt a tax designation scheme for withholding tax payers. Finally, the tax system shall adopt a differential income tax treatment approach, which takes in to account important factors such as the types, purposes and sources of income of CSOs.