When you’re running a small business, every peso counts. That’s why many entrepreneurs and local business owners choose to buy raw materials from their local market instead of formal suppliers. The prices are significantly cheaper, and for good reason. Most of these local market vendors operate informally, which means they don’t issue official BIR-registered receipts.
And here lies the dilemma: How do you account for these purchases properly, especially during a BIR audit?
Let’s break it down.
The Risk of Missing Receipts
The BIR requires valid official receipts for expenses to be recognized as deductible. Without them, your business expenses, no matter how real and necessary, may not hold up during an audit. This could lead to disallowed deductions and even penalties.
However, we understand that not all business owners have access to registered suppliers, especially in industries like food or retail where sourcing from local markets is common practice.
So what are your options?
1. Create an Affidavit of Expenses
While not always guaranteed to be accepted by the BIR, an Affidavit of Expenses is one way to formally document your transactions. This notarized statement should include:
- A list of the items purchased
- The amount spent
- The vendor’s name (even if they’re not registered)
- The reason for buying from that specific vendor
It’s not a substitute for a receipt, but it shows that you’ve made an effort to document the expense truthfully and legally.
2. Keep Proof of Payment, Any Proof!
In the digital age, payments don’t always come in the form of cash. If you paid through online wallets (e.g., GCash, Maya, etc.) or bank transfers, make sure to save the screenshots or confirmation emails.
Even a handwritten note or acknowledgment from the vendor is better than having no documentation at all. While these may not qualify as official receipts, they can still support your affidavit and bookkeeping records.
3. Record the Expense Even If It’s Non-Deductible
If there’s no valid BIR receipt, the safest route is to record the transaction as a non-deductible expense in your accounting books. This means it won’t reduce your taxable income, but it still provides transparency and consistency in your financial records, a big plus during audits!
Moving Forward: What You Can Do
To minimize future compliance issues, consider:
- Looking for BIR-registered suppliers who can issue official receipts
- Encouraging your regular market vendors to register with the BIR
(some might be open to it!) - Talking to an accountant to help you build better systems for documenting informal purchases
Final Thoughts
Doing business in the Philippines means balancing practicality with compliance. While sourcing from the market may save money upfront, it’s important to document everything properly so you don’t run into bigger problems later.
If you’re unsure how to handle these gray areas, don’t worry you’re not alone. Our firm has helped countless small businesses stay compliant while keeping their operations lean and cost-efficient.
Need help with your books or BIR compliance? Message us today! we’re here to make accounting simple.
Bong Corpuz & Co. CPAs 
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