Western Australia's taxi industry has been labelled a “public policy scandal” after recent review, but the sector says it has problems of its own.

An independent report by economists Professor David Cousins and Professor Allan Fels AO have been handed to WA government and industry officials this week, detailing a clear fall in demand while fares continued to rise.

“Inclusion of the lease value of licences in the calculation of fares means that fares are around 16 per cent higher than they should be and that customers are paying around $3.30 more for an average trip as a result,” the report said.

Professor David Cousins told Fairfax Media that reform was needed.

“When a driver leases a licence from someone, that cost is represented in the fare formula. So that's adding that 16 per cent to the set price, the maximum price which, of course, all drivers charge,” he said.

“So, whenever you get into a cab, you could be paying $3.30 for a piece of paper that some investor owns, and that's the licence.

“This is a system that benefits the licence holder... it's a terrible system.

“We're proposing that we get on with reform. The licence holders can't hold the community hostage.”

The report found that help with lease costs would get more taxi drivers involved in ownership, which it says could improve the state of play.

“The supply side of the taxi industry is characterised by dispersed ownership of licences with an estimated 40 per cent of licences being in the hands of investors who otherwise have little other role in the industry,” the report stated.

“These licences are mainly leased to Taxi Management Companies. Overall, an estimated 55 per cent of licences are owned or leased by drivers. All operators must be affiliated to a Taxi Dispatch Service (TDS) with Swan Taxis being the dominant TDS accounting for around 90 per cent of bookings.

“The review recommends that in future, entry to the taxi industry be controlled through the price of government leased licences only, without imposing on top of this any restrictions on licence numbers.

“Two options have been identified here. The first and preferred option is that the fee for a (conventional sedan) government licence be reduced to $10,000 per year. The alternative option is that this fee be set initially at the current level of $13,390 per year.”

WA Transport Minister Dean Nalder has previously claimed that deregulation of the taxi industry is inevitable, something the Taxi Council of WA strongly opposes

Taxi Council chairman Kevin Foley has defended the industry's performance.

“During the peak times - which is Friday and Saturday night - we're running at 93.7 per cent efficiency,” he told the ABC.

“Everyone's getting a cab within 20 minutes on a Friday and Saturday night.”