A new app will improve taxi booking.

The Taxi Services Commission announced on Thursday that the surcharge will be halved on February 1. Photo: Angela Wylie

The cost of paying for a taxi by credit or debit card will halve next month, when the state government begins to enforce its decision to slash the surcharge for non-cash payments from 10 per cent to 5 per cent.

The Napthine government's taxi industry inquiry report recommended reducing Cabcharge's 10 per cent surcharge for taxi payments.

The Taxi Services Commission announced on Thursday that the surcharge will be halved on February 1 to a maximum 5 per cent.

"Providers, operators and drivers who don't comply with this change may be subject to enforcement action, including prosecution," the commission said.

Any passenger charged more than 5 per cent should keep their receipt and contact the commission or taxi booking company, it said.

Industry group the Victorian Taxi Association argued that the new cap was unfairly low and would potentially put drivers in danger.

Spokeswoman Georgia Nicholls said the association was "concerned that this arbitrary figure is too low and it could remove the incentive for electronic processing companies to provide this service in Victoria going forward".

"Electronic payment of taxi fares is the predominant way in which taxi customers choose to pay their fare. It also helps protect drivers by vastly reducing the amount of cash held in taxis," Ms Nicholls said.

The industry deserved more time to adjust their businesses to the new, lower surcharge, she said.