This paper examines tax knowledge and communication in local governance in four Portuguese municipalities. Focusing on Barcelos, Braga, Guimarães, and Vila Nova de Famalicão, the study assesses residents’ awareness of the municipalities’ variable participation in the Personal Income Tax. It highlights the significance of fiscal transparency and tax literacy in fostering informed citizenry and ensuring effective public engagement. Using a mixed-methods approach, the research incorporates qualitative interviews with tax experts and a quantitative survey of 231 residents applied in 2024. Findings reveal significant gaps in public knowledge about the variable participation in the Personal Income Tax, with only a small percentage of respondents being aware of their municipalities’ participation rates. The study identifies two distinct clusters of respondents: the “Engaged,” who support the use of variable participation resources for local development, and the “Skeptics,” who are less convinced of its benefits. The results underscore the need for targeted communication strategies and public education campaigns to enhance tax literacy and fiscal transparency at the local level.