Sorry folks, I tried to edit the previous post but was too late.

I made the following changes and it seems to work for my specific requirements. Hope this is useful to someone else as well.

In functions_prices.php find

PHP Code:
        $final_display_price = '<span class="smalltext1"><s>' . TEXT_PRODUCT_MSRP . $currencies->display_price($display_msrp_price, zen_get_tax_rate($product_check->fields['products_tax_class_id'])) . '</s></span><br><span class="save">' . TEXT_PRODUCT_SAVE . $currencies->display_price($save, '') . '&nbsp;&nbsp;(' . number_format((($display_msrp_price - $display_normal_price) / $display_msrp_price), 2, '.', '') * 100 . '%)' . '</span><br><span class="norm">' . TEXT_PRODUCT_OUR . $show_normal_price . $show_special_price . $show_sale_price . $show_sale_discount . '</span>'; 
and replace with

PHP Code:
        $final_display_price = '<span class="smalltext1"><s>' . TEXT_PRODUCT_MSRP . $currencies->display_price($display_msrp_price, zen_get_tax_rate($product_check->fields['products_tax_class_id'])) . '</s></span><br><span class="save">' . TEXT_PRODUCT_SAVE . $currencies->display_price($save, zen_get_tax_rate($product_check->fields['products_tax_class_id'])) . '&nbsp;&nbsp;(' . number_format((($display_msrp_price - $display_normal_price) / $display_msrp_price), 2, '.', '') * 100 . '%)' . '</span><br><span class="norm">' . TEXT_PRODUCT_OUR . $show_normal_price . $show_special_price . $show_sale_price . $show_sale_discount . '</span>'; 
The discount is now displaying with the VAT included.