It depends. There are some situations in which Registered Indians do not pay taxes. Under sections 87 and 90 of the Indian Act, Registered Indians do not pay federal or provincial taxes on their personal and real property that is on a reserve. Personal property includes goods, services and income consistent with Canada Customs and Revenue Agency (CCRA) policies.
* In this document, when the term "First Nation" is used in the context of the Indian Act, it refers to an Indian Actband.
Since income is personal property, as a Registered (or entitled-to-be-registered) Indian, you may also be exempt from paying income tax on income earned on a reserve. For example, Registered Indians who work on a reserve do not pay federal or provincial taxes on their employment income. See the CCRA's June 1994 guidelines of "Indian Exemption on Employment Income."
Registered Indians do not pay federal or provincial sales taxes on personal and real property on a reserve. The federal Goods and Services Tax (GST) does not apply to on-reserve goods or to those goods acquired by a Registered Indian off-reserve, if the goods are delivered to a reserve by the vendor or the vendor's agent. Most provincial sales taxes are applied in a similar fashion. Special provincial rules may apply to items such as automobiles and alcohol. For example, in some provinces, an automobile must be registered to a reserve address to be tax exempt. For more information, contact the relevant provincial tax authorities.
I hope this dispells some of the myths and misconceptions.
I pay hefty taxes, both personal and business. So I can attest to the vaidity of this information. There are however loops and ways to make end runs around these laws, and yes I have been party to them. But I would assert that I likely pay higher income taxes then most of the residents of my neighbourhood or this forum, so I do not feel bad about that. In part because there are services and exemptions that I can not aquire, due to my living and business arrangements as well as personal choices, ie: I refuse to be a "gimme gimme gimme" Indian(note, the term Indian in this case is being used derogatorally, and is in no way the correct use of the word). So I have made use of some things in an, albeit serrupticious way, attempt to balance out what I see as fair way. Take that as you wish.