VICTORIAN local councils and the insurance industry have called for the state's onerous Fire Services Levy to be replaced with a bushfire-risk based property tax.

Under the current scheme, farmers and regional businesses pay FSL of 84 per cent, plus GST and 10 per cent Stamp Duty on their insurance, which more than doubles their premiums.

The Victorian Bushfires Royal Commission is conducting a review into the FSL, which the Insurance Council of Australia and Municipal Association of Victoria have argued is inequitable.

In its paper on the review, the Royal Commission states: "The major criticism of the FSL is that it allows the non-insured and under-insured to avoid or reduce their contribution to the funding of fire services, therefore increasing the amount paid by others".

Victorian Department of Human Services and ICA data suggest about 13 per cent of properties lost on Black Saturday were not insured and that most homes were substantially under-insured.

In its submission to the Royal Commission, the ICA called for the Fire Services Levy to be replaced with a property tax that incorporated a robust bushfire risk rating system, which would be available to property owners and renters.

"Such information would in the first instance allow appropriate risk-based decision making," the ICA stated.

"In the second instance it would facilitate an equitable contribution to the funding of fire services based upon risk and value."

The ICA argued the Country Fire Authority had already developed a risk rating system for Victorian properties, based on land-use, location, slope, building materials, vegetation and a range of other factors.

In its submission, the Municipal Association of Victoria said it also supported a broad-based property tax to fund fire services, with a progressive tax rate including fire risk.

"The MAV strongly believes that the State Revenue Office is the most appropriate body to collect a property-based tax as it has an existing capacity to collect a statewide property tax," the MAV stated.

"Should the Royal Commission recommend a property-based system that attempts to align benefit to the financial contribution to the fire services, the model must incorporate the risk of fire into the payment structure."

"A potential efficiency gain through a well targeted tax could achieve behaviour change and improve the risk management practices of households and business."