However, a detailed review is to be carried out into the precise cost of keeping the city's black cabs on the road.
The city council, which has issued licences to 1250 taxi operators, is responsible for deciding any fares increase.
Senior officials had suggested the rise this year should be pegged at 3.64% sparking anger from taxi drivers.
They claimed the rise did not cover their increased costs including fuel duty and insurance.
A lawyer acting on behalf of Glasgow Taxis pointed out the formula for assessing the cost of running a taxi was introduced in 2007.
But he said while Glasgow Taxis believe it was right to use the formula when setting previous fare rises, it was now time for it to be reviewed.
A letter sent to the licensing committee said: "The current formula significantly over estimated the level of income generated from the operation of a taxi.
"The figure for driver's income, which is arrived at utilising the current formula, is £17,803, whereas the correct figure is £15,844.
"The 3.64% increase proposed does not reflect the actual increase in the cost of operating a taxi."
The firm called for a complete review of the formula used to decide the level of increase in fares.
Councillors were told: "It is clearly important the council, when seeking to review fares, does so on the basis of an assessment which is as accurate as possible, taking account of all available information."
Drew Connolly of the Unite union, which represents hundreds of taxi drivers, said they were "deeply disappointed" at the council decision.
He added: "There is a league table of taxi fares in the UK and Glasgow has dropped down steadily over the years and is now 301 out of 360 local authorities.
"If you look at cities which are Hackney cab only – which Glasgow is – our fares are the lowest in the UK.
"People like to provide the cheapest taxi fares they can but it has got to the stage Glasgow city taxi drivers are not making a living wage.
"Many drivers, especially those who work Monday to Friday, take home far less than the minimum wage."
Mr Connolly said the union will establish whether members wish to challenge the city council decision.
vivienne.nicoll@eveningtimes.co.uk
