Is it Islamically permissible for the administration to deduct 1% from the amount falling short of the set target, while granting 0.7% as commission for the achieved amount?

This transaction is permissible in its origin if it is free from the aforementioned deduction, as it is a type of ju'alah (reward/stipend).

However, deducting a sum of money when the stipulated amount (maj'ool 'alayh) is not achieved is impermissible, because it constitutes consuming people's wealth unjustly. The matter is one of two scenarios: Either the stipulated amount is achieved, in which case the worker deserves the agreed-upon reward, or it is not achieved, in which case he does not deserve the agreed-upon reward. Deducting a sum of money as a penalty is impermissible; it is an injustice. Allah Almighty says: (O you who have believed, do not consume one another's wealth unjustly).