Before reading this, keep in mind I’m not a lawyer.
The tax interview is there for Itch.io to know who they are working with, and to make sure they are covered legally. As you mentioned, it is also to calculate taxes, including a withholding rate (if applicable).
If you want to publish free projects, you do not need to complete the interview. However if you plan to have projects for sale, you need to complete it before you can take money out.
Will the website do the aforementioned tax deduction for me and/or do I need to do something locally in regards to taxes (e.g. go to the tax office in my area)?
If you select “Collected by Itch.io” in the payment modes, then the website will take care of sale taxes. Once you’ve collected a specific amount of money (I think $5?) or above, you can request and collect the money. This is recommended for beginners.
However you will still be responsible for declaring and paying income tax on it. That’s when you go to your government and say “I earned $XXXX as a sole trader, what do I owe in taxes?”. The process is different in each country, so I can’t help much there.
Hope that helps. From what I remember, you can retake the interview multiple times, so you can start the process to see what information is required, and leave it unfinished or restart it later. Only thing to keep in mind is always put accurate information in it.
Hope that helps, looking forward to having your projects around :)