A federal government review into the Australian competition policy has recognised that a reform of taxi regulation in most states is "long overdue".

In the Competition Policy Review draft report (PDF) released on Monday, it has been recommended that states and territories remove regulations that restrict competition in the taxi industry, including from services that compete with taxis, except where it would not be in the public interest, as they are creating barriers to entry and preventing innovation.

"The regulatory framework for taxi regulation could be enhanced considerably through independent regulators having the power to make determinations (rather than recommendations), including on the number and type of taxi licences to be issued," the panel said.

"Mobile technologies are emerging that compete with traditional taxi booking services and support the emergence of innovative passenger transport services. Any regulation of such services should be consumer-focused and not inhibit innovation or protect existing business models."

The Australian taxi industry has been facing ongoing disruptions since the emergence of ride-sharing services, such as Uber, and the introduction of taxi booking apps, including goCatch and ingogo.

The Australian Taxi Industry Association (ATIA) expressed its outrage about these disruptors in its submission response to the Competition Policy Review's Issues Paper in July. The ATIA demanded for the federal government to revise existing taxi competition regulations, claiming the NSW, Victoria, and Queensland state governments were failing to regulate the industry properly.

"These governments effectively abandoned their responsibility to 'protect' competition (i.e. the level playing field) by allowing a discrete subset of competitors to ignore or avoid the requirements that they continued to impose on the rest of the market’s competitors," the ATIA said in its submission.

However, in the draft report, the review panel criticised that existing regulation "is more concerned with protecting a particular business model than being flexible enough to allow innovative transport services to emerge", and that it focuses on two areas: The quality of taxi services and restricting the number of taxis that can operate.

The review also said that unlike overseas counterparts, Australian regulators have yet to demonstrate flexibility and openness to new modes of business. This has been demonstrated by Transport authorities in NSW that have declared that UberX , Uber's ride-sharing service, as non-compliant with the Passenger Transport Act. Similarly, Victorian Taxi Service Commission has fined Uber drivers for not complying with government regulations.

"Regulation of taxi and hire car services should be focused on ensuring minimum standards for the benefit of consumers rather than restricting competition or supporting a particular business model. This can be delivered through an independent regulator," it said.

The panel has suggested that the reform of the taxi industry will need to occur in two-fold: To reduce or eliminate restrictions on the supply of taxis that limit choice and increase prices for consumers; while ensuring that technological change that can benefit consumers is not discouraged.

In a blog post, Uber said it supports the panel's call for the removal of anti-competition regulations for the taxi industry.

"Demand for Uber has grown exponentially across Australia, with hundreds of thousands of riders, and thousands of partner-drivers, signing up to the platform and enjoying the reliability, convenience, safety and affordability that it offers," the company said. "We support the draft report findings on taxi competition and look forward to working with the review as they finalise this important process."

The independent review led by Professor Ian Harper commenced in March this year, following an election promise that the Liberal Party had pledged during its 2013 election campaign after recognising the Australian economy has changed since the last major review of the competition policy in 1993.