3 Tax Myths That Cost Philippine Small Businesses Money

3 Tax Myths That Cost Philippine Small Businesses Money

Taxes
November 26, 2025•3 min read

Published Date: November 26, 2025

Published By: Jac Cantos, Upcloud Accounting

In the Philippines, a lot of small business owners rely on casual advice, whether from friends, Facebook groups, or hearsay. Unfortunately, this leads to costly mistakes with the BIR. 🌐
To help business owners stay compliant and avoid penalties, we’re breaking down three of the most common tax myths that silently put businesses at risk.

Before diving into the myths, here are a few essential reminders about taxes in the Philippines:

  • Even if your business has no income, BIR requires specific returns to be filed.

  • Not all expenses qualify as tax-deductible, only those directly related to business operations.

  • BIR can audit any business, regardless of size, especially with third-party data matching.

  • Compliance is not optional; missing deadlines leads to penalties, surcharges, and compromise issues.

Myth 1: “If I didn’t earn anything, I don’t need to file.”

Tagalog: "Wala namang income, so no need to file."

Reality:

  • Zero income ≠ zero filing.
    If your business had no sales for the period, you still need to submit certain tax returns, depending on your registration type. ❗

Impact on Your Business:

Failing to file required returns can lead to:

  • Penalties per missed filing

  • Surcharge and interest fees

  • Compromise penalties

  • Greater risk of audit

For “no income” periods, businesses may still need to file:

  • Quarterly Income Tax Return

  • VAT/Percentage Tax Returns

  • Quarterly/Annual Information Returns

Myth 2: “As long as there’s a receipt, it’s deductible.”

Tagalog: "As long as may resibo, deductible yan."

Reality:

  • Not all receipts count as legitimate business expenses.

To be deductible, the BIR requires expenses to be:

  • Ordinary

  • Necessary

  • Reasonable

  • Directly related to business operations

Impact on Your Business:

Claiming non-allowable deductions can:

  • Inflate expenses

  • Cause discrepancies during audit

  • Trigger disallowances and additional tax assessments

Things to Verify Before Claiming an Expense:

  • Is it purely for business use?

  • Does the receipt include correct TIN, address, and business name?

  • Is the vendor BIR-registered?

Myth 3: “Small businesses don't get audited.”

Reality:

  • Size does not protect you from audit.
    In recent years, the BIR has increased checks on micro, small, and online businesses using data from banks, LGUs, POS systems, and marketplaces. 📌

Impact on Your Business:

If inconsistencies appear, even the smallest businesses may receive:

  • Letters of Authority (LOA)

  • Assessment notices

  • Requests for supporting documents

How to Reduce Audit Risks:

  • File accurate and timely returns

  • Ensure books are updated and signed

  • Reconcile declared sales with ORs, POS, and bank deposits

  • Keep valid documentation for every transaction

Why Debunking These Myths Matters

Understanding the truth behind these tax myths helps businesses:

  • Avoid penalties and unnecessary costs

  • Improve compliance and financial health

  • Build credibility with partners, suppliers, and the BIR

  • Strengthen long-term growth and sustainability

Upcloud Accounting recommends reviewing your filings regularly to ensure accuracy and compliance.

References (Government Sources):

📌 BIR Requirements on Filing Obligations (Even with No Income)
Revenue Memorandum Circular (RMC) 4-2021

📌 Allowable Deductions under the TRAIN Law
NIRC of 1997 (as amended) & BIR Revenue Regulations related to TRAIN

📌 Compliance Obligations & Audit Guidelines
Revenue Memorandum Circulars & Issuances

Upcloud Accounting: Virtual Outsourced Accounting and Bookkeeping Services in the Philippines

Upcloud Accounting offers accounting, bookkeeping, tax compliance, and business licensing services specializing with startups and SMEs in the Philippines.

Our goal is to increase efficiency, automation, and transparency across the accounting and finance functions of our clients with our cutting-edge technology. If you want to move your company’s finance function online, contact our Team of Expert Accountants and Bookkeepers directly via [email protected] or visit www.upcloudaccounting.comto learn more about how Upcloud Accounting accounting services can support your PH business!

Disclaimer: This article or blog is only for general knowledge and guidance and is not a substitute for an expert opinion. For technical advice, please consult your tax / legal advisor for your specific business concerns. For comments, suggestions, and feedback, feel free to email us at [email protected].

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