This is because plastic leaves a paper trail and cash does not. If you pay in cash and don't ask for a receipt, the seller doesn't pay tax on it, and will often give you a discount.
Not in a country of 1.3 billion people and only 1.6 million police officers, where everyone selling goods or services practices this.
Besides, I don't think enforcing tax collection is, or has ever been, a function of the police force.
China's internal revenue service tolerates widespread sales tax evasion via undocumented cash transactions, even if for no other reason than that they lack the auditing infrastructure necessary to enforce collection.
Meanwhile, in the cases when someone does ask for a receipt for a cash transaction, it is always because they want to "expense" it. Salary rates in China, at both state-owned and private enterprises, are shockingly low, but they compensate for it by allowing their employees to claim expense reimbursement for practically anything. Therefore, there is even a black market for receipts. If you spend cash on an expensive meal in China and you get a receipt, you can even sell that receipt to a receipt trader, who will resell it to someone else for 1% of the amount on the receipt, and then that person will claim it to their company as an expense, and get reimbursed cash for it. This sort of fraud is rampant in China.
