Can you set a song on iTunes as a ringtone?

Yes, to make and/or use a song as a ringtone, you must first make that song suitable for a ringtone.

See the following Apple articles:

Create and manage ringtones -> Create and manage ringtones - Apple Community

Create a ringtone of your Logic Pro or GarageBand for Mac song

Create a ringtone of your Logic Pro or GarageBand for Mac song – Apple Support (UK)

Create Ringtones in Garageband -> https://discussions.apple.com/docs/DOC-250006796

You can, as noted above, create a ringtone from a song that you own. You can not do so using a song downloaded using Apple Music.

You can not set a 'song' as a ringtone.