Go somewhere more adventurous.
I've seen it a ton, generally in countries where Western-style toilets are a recent thing (most often in countries that use squat toilets) and the plumbing isn't able to handle paper being run through it. Upscale hotels, even in poorer countries, will often have Western-style toilets. But if you're staying in lower-end places? Expect to see this.
I've found the bin doesn't usually smell any worse than a toilet usually does -- most of the time people wrap the used paper in another piece or two of fresh paper. The only time it's honestly ever been an inconvenience for me is when I had a horrible bout of food poisoning when I visited China (don't eat mystery street meat!). However, using the bin was still better than some of the squat toilets I found in a Beijing park. Ugh.