The present disclosure provides a system and method for allocating bandwidth in remote equipment on a passive optical network (PON), wherein the system includes an optical line terminal (OLT), which monitors the acceptance of traffic requesting the PON remote equipment for service and configures through signaling control the parameters for the operation of classifying, shaping, and scheduling the traffic in the remote equipment, and a remote equipment which classifies, shapes, and schedules the accepted traffic based on the parameters configured by the OLT and allocates a proper bandwidth to the accepted traffic, and outputs the traffic in the scheduled order. The present disclosure helps ensure the bandwidth and delay requirements of individual traffic flows in the PON remote equipment are met and interaction between traffic of the same or different service class groups is eliminated.