Taxi fares will increase across Victoria in a bid to improve service, the state government has announced.

The changes are designed to encourage more cabs to operate during peak times.

“The taxi industry has not had a fare increase in six years and Victoria can still lay claim to some of the cheapest taxi fares in Australia,” Public Transport Minister Terry Mulder says.

“On average, daytime fares will only rise by a little over $1 per trip, for trips up to 40 kilometres.”

The changes will introduce a new tariff structure with different flag fall and per-kilometre costs applying to “Daytime” (9am to 5pm), “Overnight” (5pm to 9am excluding peak) and “Peak” (10pm to 4am on Friday and Saturday) taxi rides.

The highest price rises will occur in peak times.

“This is about matching demand to service provision,” Mr Mulder said.

On average, fares will increase by 12.5 per cent.

According to modelling, a 10-kilometre daytime trip will increase overall by $1.06 to $23.83. A 10km trip at peak times on Friday or Saturday will increase by $7.46 to $30.23.

The changes will take effect from May 19.

Drivers will also get an increased slice of the fare, rising from 50 per cent to 55 per cent from July 1.

The changes are the result of a review by Taxi Services Commission chief commissioner Graeme Samuel, who said it was about balancing the interests of the industry, drivers and passengers.

“Higher rates at peak times will provide more incentive for cars to be on the road when they are needed the most, while cheaper day rates will mean minimal impact on daytime users and increased patronage to support the industry,” Mr Samuel said.

“Passengers trying to get home late on Friday and Saturday nights will pay more, but will be better serviced by the availability of taxis.”