That's extremely unethical. But more importantly, doesn't it cause huge perverse incentives?

Correct me if I'm wrong, but the way this works is that you pretend the cash transactions didn't happen, and write the inventory off as lost or whatever. Or you buy the inventory for cash as well.

So if you have 50% cash and 50% card, you might report only 50% of the cash and reduce your reported gross income by 25%.

In other words, the legitimate but cash-eager businesses will have to pay fines. The frauds can boast about their 100% cashless ratio and pay no taxes as well as no fines.