"Without this distinction, the financial centre would shrink by up to half of its current size," Ivan Pictet, a private banker who heads bank association Geneva Financial Centre, said in an interview with Swiss newspaper Le Temps newspaper.
"Rather than making up about 12 per cent of gross domestic product, the financial sector would make up just about 6 or 7 per cent," he added in response to a question on the consequences for Switzerland's financial hub if no difference were made between tax fraud and tax evasion.
The distinction accorded by the Swiss to tax evasion and tax fraud lies at the heart of tussles with several foreign authorities.
Here, tax evasion is not a crime, but tax fraud – which involves the forgery of documents, is.
Swiss banking secrecy law prohibits banks in Switzerland from revealing any information to authorities or any third parties about their clients, except in cases involving recognised criminal investigations.
Therefore, banks would not transmit details in cases of evasion but only in instances of fraud.
The treatment has led some foreign critics to charge that Switzerland's distinction and banking secrecy laws promote tax evasion.
The pressure stepped up dramatically last week after Switzerland's biggest bank, UBS, provided data on 250 to 300 clients to the US government. It also admitted to aiding tax fraud in the United States and paid $780 million (Dh2.9 billion) to settle the charges.
A day later, the US government filed a lawsuit to try to force UBS to disclose the identities of 52,000 US customers who allegedly evaded taxes, sparking debate in Switzerland about the "end" of banking secrecy.
On Sunday, international pressure mounted, as European leaders preparing for the meeting of the Group of 20 nations in April called for a list of "uncooperative jurisdictions" to be drawn up, with sanctions to be imposed.
Pictet said that the G20 posed a "real threat."
He rejected the suggestion that Switzerland's financial centre thrives on tax evasion, saying that it is "not the role of a banker to assure that his client is paying his taxes."
"That would require a police investigation before determining if the client could be accepted or not," he said.