The presenter, well known for fronting BBC Newsnight for 25 years, said the current funding system is no longer fit for purpose. Likening the Government’s shift away from a reliance on fossil fuels for energy, Mr Paxman said the BBC needed to move on from the archaic licence fee model.
Anyone who watches linear TV is currently required to pay £159 a year.
The licence makes up the large part of the BBC’s annual budget and is paid by over 25 million households.
Failure to pay the fee is a criminal offence and can lead to a prison sentence.
Throwing his weight behind campaigners pushing for change, Mr Paxman said it was time for the BBC to “start again”.
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“I don’t think the licence fee can survive — it’s mad,” he told The Sunday Times.
“We don’t tax any other bit of household equipment.
“It cannot possibly survive in that form.
“It belongs to another age. It’s a bit like coal.”
The remarks from the broadcaster, who has worked for the BBC since 1972, will be music to the ears of campaigners.
With the rise of streaming services such as Netflix and Amazon Prime, there has been a growing demand for the compulsory fee to be scrapped and replaced with a new funding model.
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“Clearly the world would not be better off without it.
“But, it is its own worst enemy.
“I think they should start again.”
Under the terms of the Royal Charter which sets out the purpose of the BBC, the licence fee is guaranteed until at least 2027.
Ministers have previously hinted the licence fee could be scrapped going forwards.
In a further sign that reform could be on the horizon, last week Prime Minister Boris Johnson appointed Nadine Dorries as Culture Secretary.
The Mid Bedfordshire MP has previously described state-run TV as “outdated”.
In a 2014 blog post on the licence fee, she added: “Such a structure of payment and aggressive persecution would be more in keeping in a Soviet-style country.”
Express.co.uk has contacted the BBC for comment.