Toxicity can mean anything now. This term is stupid and meaningless. This is a game, people come to the game to blow off their steam in the game. If someone starts to write garbage in the chat, I don't care, the most reasonable option is to add a button to hide the chat.
The issue is that one idiot that constantly insults or tries to ping-spam can ruin a game. I don't want to constantly have the ping or "new chat message" sound in the background, and not messages popping in every second. It is still distracting to some extend. Especially in 4v4s, where 8 randoms are being thrown together, this can happen easily. As you said, there should be an easy way to just mute someone either totally or special chat functions.
I'd personally like to have an overlay where I can mute a player completely, followed by additional buttons to mute only specific communication (VOIP, text, ping).